Us resident getting married to Canadian resident

JM · Post by JM » Wed Jul 04, 2007 10:44 am

Hello, I've been on a P1 visa in the US for the past three years (Canadian citizen/US resident). Living in US from Sept. to May and in Canada from May to August. Filing taxes in the US and not Canada. This August I'm getting married to a Canadian citizen/resident. We are also purchasing a condo in Canada and plan to rent it out. My wife to be works in Canada, but is moving with me to the US in September. Do we file a joint return in both countries for the 2007 tax year? How do we handle our rental income? Does she need to apply for a TIN in US? All sugestions would be appriciated. Thanks.

nelsona · Post by **nelsona** » Wed Jul 04, 2007 12:29 pm

The CRA website has excellent info on "Emigrants", which is what your wife will be when she leaves (as you were 3 years ago).

The rental income must be accounted for monthly, with monies sent to CRA every month. The Emigrants pages will direct you on this. Then you file a '216' return to determine the tax you owe in Canada.

All this , plus depreciation will be reported in US as well.

For US, she will no doubt join you on your (now) joint 1040, and exclude her Cdn wages by form 2555.

JM · Post by JM » Wed Jul 04, 2007 7:15 pm

Thanks. How do you handle the condo in terms of principal residence? We are renting an apartment in US. When you switch the condo to rental property from principal residence do you have to pay capital gains, or can you wait til you actually sell?

nelsona · Post by **nelsona** » Thu Jul 05, 2007 6:28 am

You are leaving in a month aren't you? The condo will never have been your principal residence, since you don't live in Canada, and can only be her pricipal residence for the next month or two. Treat it as rental unit from day one. You simply couldn't rent it for a month or two, which is normal. This gets your expenses of purchase deductible.

Even if you decide to say that it was her principal residnce for 2 months, there is no tax due on departure since it will always be taxed by canada. Tax wil be due on sellng (or on re-establishing residence there).

There might be some advantge to saying it was principal residence, but only if you sell it never having taken residency there again. But none of these decisions need to be made until time to sell.

JM · Post by JM » Fri Jul 06, 2007 2:28 pm

Ok thanks for the suggestion. So we need to file a NR-6 before we start renting it out, anything else we need to do before it is time to file our return next April?

nelsona · Post by **nelsona** » Sat Jul 07, 2007 3:48 pm

The NR6 is a good idea (since it will reduce withholding), but is not required. The 216 return next spring is the key, even if you do file NR6. Spouse *may* need to actally be non-resident to file NR6.

Other items (which should be familair since you already went through this): advise anyone who pays spouse (bank, RRSP, etc) that they are becoming non-resident.

JM · Post by JM » Mon Jul 09, 2007 10:34 am

Just wanted to clarifly a few things. Will my spouse have to become a NR of Canada? She will be living in US for 6months and Canada for 6months of the year. We have started the process of getting her a US ITIN so that we can file a joint 2007 US return. Also, will we have to file a joint return in Canada, with her income and rental income on it? I guess what I'm asking is what is the best way to file to limit our taxes in both countries for 2007?

nelsona · Post by **nelsona** » Mon Jul 09, 2007 10:47 am

"We have started the process of getting her a US ITIN so that we can file a joint 2007 US return"

She won't get an ITIN until you file the return, so don't waste time getting ITIN now.

Once you are married, and she remains Cdn resident, they YOUR INCOME becomes subject to Cdn taxation, especially since you also spend much time in canada. So make sure she too becomes US resident.

There is no such thing as a joint Cdn tax return.

You said she will be living in canada 6 months of the year. Where? She is renting out her condo. make sure that she stays less than 183 days.

JM · Post by JM » Mon Jul 09, 2007 12:11 pm

Ok great! She will become a US resident once we are married. She has worked in Canada in 2007, and will also have rental income. What will be her status when she files her 2007 taxes? I know we will also have to claim worldwide income on US return, and include her Canada wages. You've been a great help. Do the laws change often, or have they stayed the same over the years? It seems like all the rules are not cut and dry. Thanks again!

nelsona · Post by **nelsona** » Mon Jul 09, 2007 12:18 pm

In 2007, she will be a departing resident, just like you were 3 years ago. The guides I already told you to look at explain everything in great detail.

She will split her rental income into before/after departure. The 216 return guide explains how to report and, more importantly, how to handle the NR6 and withholding.

The laws have not changed in many years. 216 has been around for at least 10 years. The only thing that changed abourt 4 years ago was the treatment of those who could be considered as living in both countries. Now the rules "push" former residents out of canada.

JM · Post by JM » Tue Jul 10, 2007 10:50 am

So if my wife remains a resident of Canada, my income after we are married(end of August) becomes taxable in Canada, right? But the tax you pay to Canada you get a credit for on your US return. In the end how much more tax does it work out to be? Using the example of a salary of $100,000 US per year.

Sorry if I'm bothering you too much. Just find all this very interesting!

nelsona · Post by **nelsona** » Tue Jul 10, 2007 11:04 am

You don't want your income taxed in canada. In fact, given the conditions you have described, you aren't taxable in Canada.

While you would probably end up paying, say $5000 more tax, your tax returns would also cost you about $1200 a year to do, so don't go there.

nelsona · Post by **nelsona** » Tue Jul 10, 2007 11:04 am

It becomes an issue of tax return complexity rather than actual tax.

JM · Post by JM » Tue Jul 10, 2007 11:11 am

So keep things simple and have her become a NR of Canada when she moves to the US in October. When she moves back to Canada in June 2008, will she have to file to become a resident of Canada again to start work?

nelsona · Post by **nelsona** » Tue Jul 10, 2007 12:08 pm

The question becomes, will she really be 'moving back' to canada or will she just be going back, like you do, every summer.

Seems to me you have had no problem being in canada 4 months every year, why would she?

Remeber, a job is not a significant residential tie.

She is moving to the US, just as you moved to the US 3 years ago. She, like you, will go back for extended periods, but will not be residing in canada (unless she does something crazy like apply for provincial medicare or something reserved for residents). The fact that she will be working, and you drinking beer all summer, won't make her any more resident than you, so long as you both maintain the US ties that 'outweigh' your Cdn ones, and you don't stay in canada more than 180 days.