Where to file my taxes first?

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BingoBango
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Joined: Thu Apr 30, 2020 12:51 pm

Where to file my taxes first?

Post by BingoBango » Thu Apr 30, 2020 1:10 pm

Hi all,

I am a US citizen that married a Canadian citizen and now I'm living in Montreal. I've applied for PR but that hasn't gone through yet so I'm technically still a visitor. For tax purposes, however, I've established substantial links so I'm considered a resident albeit not permanent.

My work situation is this: I am a self-employed contractor providing bookkeeping/accounting services to a German company. My "business" is in the US (the address on the contract is in the US) and I get paid to a US bank account but since I work remotely I am able to take my work wherever I go. I am able to do my work from Montreal even without a work permit because the government doesn't consider what I do to be "work" in the legal sense since I am currently a temporary resident. You can check this link to see what is considered work and what is not https://www.canada.ca/en/immigration-re ... -work.html

I also did some gig work in the US totaling maybe $5k CAD.

I know that I need to report my worldwide income on my Canadian tax return but from what I understand, I would submit my US tax return first and then use the amount that I paid in the US to claim a foreign tax credit in Canada to offset the amount I would have to pay to 0. Is this correct or am I wrong?

Any help is greatly appreciated. It's my first time having to file taxes in both countries and it's way more complicated than I thought. I don't have a Canadian bank account or any Canadian assets so no need to file an FBAR and I don't have more than $100k in US assets either. I made about $30k CAD in 2019 so I don't really have the budget to hire an expensive cross border specialist.

Thanks!

nelsona
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Re: Where to file my taxes first?

Post by nelsona » Thu Apr 30, 2020 2:19 pm

Since you must report all income in both countries, you really need to do both taxes at the same time, first without any foreign tax credit.
Then you use the rayes determined by these first returns, to come up with what is the foreign income, and pro-rated foreign tax for each return.

You use these figures for each return, and they are now complete.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

BingoBango
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Joined: Thu Apr 30, 2020 12:51 pm

Re: Where to file my taxes first?

Post by BingoBango » Thu Apr 30, 2020 3:14 pm

Well from the way I see it, all my income should be considered as foreign income in Canada since my business is in the US and my income is earned in the US. I've already prepared my US tax return but haven't submitted it. I used the amount of taxes I have to pay in the US to offset my tax liability in Canada.

My main question is: Should I file in the US first and then offset my tax liability in Canada or should I file in Canada first and then offset my US tax liability?

nelsona
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Re: Where to file my taxes first?

Post by nelsona » Thu Apr 30, 2020 4:56 pm

Again, the foreign tax credit is a matter of being correct, not the order of filing.

Even though you say you have a business in US, and you earned income in US (you actually didn't), Canada will not give a tax credit for it, since you live in Canada, and in your case, you earned it there too. You should be paying CPP premiums and not SE tax on this income.

Interest and cap gains, earned in US also do not get any FTC on your Cdn resident return.

So it looks like you should be claiming foreign tax credit on your US return for these incomes, not Canada.

Is there any other type of income that you earned?

btw, when was your move date to Canada, income before that date is treated differently than after.

See why we don't get ung up on what order we file? We file at the same time.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

BingoBango
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Re: Where to file my taxes first?

Post by BingoBango » Thu Apr 30, 2020 10:52 pm

Why isn't my bookkeeping income earned in the US if my contract is based in the US and the payments go to my US bank account? What about gig work that I preformed in the US in September? It's more or less the same concept except I don't have to be physically present to do my bookkeeping work. So if my income is not earned in the US then it should be considered foreign income which sounds extremely strange because I can't even legally work in Canada.

My move date is June 13th 2019 because this is when I established residential ties. I got married in June, came back to the US in July and then came back to Canada in early October.

nelsona
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Re: Where to file my taxes first?

Post by nelsona » Fri May 01, 2020 8:27 am

So, there is a difference, as I said, between the treatment of your income BEFORE you became resident, and after.

Before, of course all income is US-sourced, and you report nothing in Canada, since taxation begins only when you established RESIDENTIAL ties, which would be, in my opinion, October. Where did you live in US after marriage, jul-Oct? A home, or a hotel? If you still had a home there, you should be claiming that was your hoe until October.

AFTER you become resident, while your income is earned in US, because you are Cdn resident, you can't claim a foreign tax credit in Canada, because, a Cdn resident who was not a US citizen, would not pay report and pay taxes on that income he earned in US (like thousands who go to US "on business"). So you need to re-source that income to Canada, and claim the FTC in US. Complicated? Yes. Counter-intuitive? yes.

Since you now live in Canada, you also are not supposed to pay SE tax (which as you know is just FICA under a different name), you pay CPP in Canada instead.
So, for US, report all income, and then re-source the portion earned after October (or June, see above) on a 1116. For Canada report world income after October (or June), and take no foreign tax credits.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

BingoBango
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Re: Where to file my taxes first?

Post by BingoBango » Fri May 01, 2020 12:17 pm

July - October I was living with my parents. What you are saying makes a lot of sense. Just to see how it would change things I set my residence date as Oct 1st. I set my foreign income before becoming a resident to 20k CAD and I set my self-employment income while being a resident of Canada to 6k CAD (with no business expenses). It's saying I owe $37 in federal taxes and I'm receiving a refund of $300 from Quebec. I've never received a refund while being self-employed (in the US) so this doesn't seem right to me.

nelsona
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Re: Where to file my taxes first?

Post by nelsona » Sat May 02, 2020 3:42 pm

How di you pay tax in QC in 2019? You were not on their books yet?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

BingoBango
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Joined: Thu Apr 30, 2020 12:51 pm

Re: Where to file my taxes first?

Post by BingoBango » Mon May 04, 2020 10:44 am

I figured it out. I was automatically getting a credit for the Canada Workers Benefit. I removed that and now I owe about $400 which sounds much more correct.

gtaaccounting
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Re: Where to file my taxes first?

Post by gtaaccounting » Tue May 05, 2020 1:07 pm

You can get all in information regarding this on the CRA website. Tax filing can be a complex matter if you don't know much about accounting. I think a professional should be there to help. It is the job of a bookkeeper to balance the books. Good Luck
GTA Accounting is a Professional CPA firm in Toronto. We are expert in providing bookkeeping services for small business https://www.gtaaccounting.ca/

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