Hi,
I am working with US company with TN status since Feb 2007. Before that I have been working in Canada. My wife is still living and working in Canada. I think I am a tax resident for both countries and need to file taxes for both countries. Correct me if I am wrong about this. Now I have questions about 401K and RRSP.
I purchased 401K and also RRSP for the year of 2007. 401K was deducted from my pay bi-weekly, say 10K US total now. I contributed RRSP for 2007 in Sep say 10K CDN(from 2006 assessment). The reason I purchased both 401K and RRSP was I was not sure which one will actually reduce my tax. So I bought both. But now what I am confused are:
Question 1:
If I file tax in US with 401K deduction, and then file tax in Canada will I save anything eventually? I feel like not. For example, if I didn't purchase 401K, I will have to pay 25K tax in US, and then 10K difference in Canada because tax in Canada is higher than US. Now because of 401K, I only need to pay 20K tax in US, but now I will have to pay 15K difference in Canada. In total I still pay 35K. So to me I didn't get any benefit. If that's the point I really not necessary to buy 401K, right(besides the reason that you don't have to pay tax on your capital gain). I hope I am wrong about this.
Question 2:
When I file tax in Canada, can I still use RRSP I contributed for 2007 to do the tax deduction?
Thanks.
Question on 401K and RRSP when filing tax for both countries
Moderator: Mark T Serbinski CA CPA
If you are resident of canada, using 401(k) does not save you anything, since it is not deductible in US. This will change in the next couple of years but for now that is the situation.
If you are resident of US, RRSP contrib is useless since you are not taxable there.
So, you have to determine if you truly are resident of canada. Because of spouse and house, you are. However, if you can show that you have a home in US, you do not visit Canada regularly, and your spouse intends to move with you shortly, you could be considered 'deemed non-resident' and no longer be taxable in Canada on your uS income.
The treaty is being modified specifically to address your 401(k) situation, and either in 2009 or 2010, 401(k) deductions will be allowed on Cdn returns.
If you are resident of US, RRSP contrib is useless since you are not taxable there.
So, you have to determine if you truly are resident of canada. Because of spouse and house, you are. However, if you can show that you have a home in US, you do not visit Canada regularly, and your spouse intends to move with you shortly, you could be considered 'deemed non-resident' and no longer be taxable in Canada on your uS income.
The treaty is being modified specifically to address your 401(k) situation, and either in 2009 or 2010, 401(k) deductions will be allowed on Cdn returns.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
My situation is this:
I was in states from Feb 4th to Oct 17. I went back Canada three times about 30 days in total during this period. My wife came to visit me twice. I rented an apartment during my stay in US. My wife intended to come in July 2007, hence we sold house in Canada, but then we found she is pregnant so I talked to my boss and he is ok for me to work from Canada. So I returned my apartment in states and left my home stuff to my friend's house and use that as mailing address in states. I travel to states to visit my customer about 1 week every 1 or 2 month from Oct 17 to now. Now we are renting an apartment in Canada from Sep 17 to now. We will go back states after she gives the birth which will be May this year. I do not have Canada driver license but I have everything else. My pay is US dollar from US company. I have SSN and US driver license. So with this situation, do you think I am US resident or Canadian or from tax perspective I am both? Thanks.
I was in states from Feb 4th to Oct 17. I went back Canada three times about 30 days in total during this period. My wife came to visit me twice. I rented an apartment during my stay in US. My wife intended to come in July 2007, hence we sold house in Canada, but then we found she is pregnant so I talked to my boss and he is ok for me to work from Canada. So I returned my apartment in states and left my home stuff to my friend's house and use that as mailing address in states. I travel to states to visit my customer about 1 week every 1 or 2 month from Oct 17 to now. Now we are renting an apartment in Canada from Sep 17 to now. We will go back states after she gives the birth which will be May this year. I do not have Canada driver license but I have everything else. My pay is US dollar from US company. I have SSN and US driver license. So with this situation, do you think I am US resident or Canadian or from tax perspective I am both? Thanks.
you are definitely a Cdn resident. Thus your 401(k) contribution was a kind of waste.
Now, you can always do your US taxes 'as if" you live in US, or by using some treaty provisions to lower your US tax. But your primary tax obligation and burden will be in Canada.
As i said, in the near future your 401(k) contribs will count in canada, but not for 2006.
Now, you can always do your US taxes 'as if" you live in US, or by using some treaty provisions to lower your US tax. But your primary tax obligation and burden will be in Canada.
As i said, in the near future your 401(k) contribs will count in canada, but not for 2006.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks Nelsona,
So I really should stop contributing 401k if my current situation will continue for another year? or I keep purchasing, one day once I am not CDN, can I deduct all of them?
the other question is: in my situation does it matter to me file 1040NR or 1040 and does it matter to me file jointly or seperatly?
Thanks
So I really should stop contributing 401k if my current situation will continue for another year? or I keep purchasing, one day once I am not CDN, can I deduct all of them?
the other question is: in my situation does it matter to me file 1040NR or 1040 and does it matter to me file jointly or seperatly?
Thanks
You should probably stop until (a) you stop being resident of canada or (b) the treaty update begins to take effect.
I will advise on this site when that happens.
How you file in US is only important to the extent that you reduce your US tax below your Cdn one. that tax includes fed, stae and fica, which are all eligible for tax credit. The simple 1040NR may not do that, especially now that you have used RRSpP.
The only way to know is to do your Cdn taxes, without using your RRSP, and see if you can get your US tax below this (ie. use up all the US tax).
I will advise on this site when that happens.
How you file in US is only important to the extent that you reduce your US tax below your Cdn one. that tax includes fed, stae and fica, which are all eligible for tax credit. The simple 1040NR may not do that, especially now that you have used RRSpP.
The only way to know is to do your Cdn taxes, without using your RRSP, and see if you can get your US tax below this (ie. use up all the US tax).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi Nelsona,
This is the first time I file both US and CDN tax. So I am still new to this. But I am very glad that I have your expertise here
to help me and other people. Appreciate it very much.
1. I am assuming we will file US tax first, then file CDN tax using US credit since I have paid most of the taxes already is US from my pay check.
2. So I will file US tax first and using the tax I paid in US as a credit to file CDN?
3. I used to use Quick Tax to file CDN TAX and also use the built-in to file tax online, can I do this to file US tax?
4. If I can file online, how can I get the access code? Will it come with the software I ordered? I am assuming it's the same as filing CDN tax.
5. What information/data should I put in the quicktax to recognize the tax/FCIA/etc I have paid in US already?
6. Should I wait for a letter from US revenue(something like CDN notice of assessment) and then file CDN tax? Otherwise how do I know the tax I paid in US is right? But then it will be too late to file CDN tax if I have to wait for that.
7. What US tax software u recommend and can do online filing too?
8. What exchange rate I should use when I convert US salary to CDN?
Sorry to throw many questions.
This is the first time I file both US and CDN tax. So I am still new to this. But I am very glad that I have your expertise here
to help me and other people. Appreciate it very much.
1. I am assuming we will file US tax first, then file CDN tax using US credit since I have paid most of the taxes already is US from my pay check.
2. So I will file US tax first and using the tax I paid in US as a credit to file CDN?
3. I used to use Quick Tax to file CDN TAX and also use the built-in to file tax online, can I do this to file US tax?
4. If I can file online, how can I get the access code? Will it come with the software I ordered? I am assuming it's the same as filing CDN tax.
5. What information/data should I put in the quicktax to recognize the tax/FCIA/etc I have paid in US already?
6. Should I wait for a letter from US revenue(something like CDN notice of assessment) and then file CDN tax? Otherwise how do I know the tax I paid in US is right? But then it will be too late to file CDN tax if I have to wait for that.
7. What US tax software u recommend and can do online filing too?
8. What exchange rate I should use when I convert US salary to CDN?
Sorry to throw many questions.
I don't answer software questions.
You should prepare both taxes at the same time. You do not have to submit them in any particular order. You will have to send a copy of your 1040 and w-2 to CRA to prove your US taxes.
IRS typically does not send anything back to the taxpayer.
You should prepare both taxes at the same time. You do not have to submit them in any particular order. You will have to send a copy of your 1040 and w-2 to CRA to prove your US taxes.
IRS typically does not send anything back to the taxpayer.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
your exchane rate, since it is over the whole year, should be the average one published by CRA.
Remember that if you file a 1040, you must report ALL world income for 2007 on it, not just your US wages.
Remember that if you file a 1040, you must report ALL world income for 2007 on it, not just your US wages.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Nelsona, thanks, I will do a full 1040 inlcuding my incomes in Canada too, along with my wife's. and use 2555 to exclue Canadian income, right?
I took a look at the http://www.cra-arc.gc.ca/tax/individual ... ate-e.html to find the exchange rate, but couldn't find the rate for US Dollar. Do I miss anything?
I took a look at the http://www.cra-arc.gc.ca/tax/individual ... ate-e.html to find the exchange rate, but couldn't find the rate for US Dollar. Do I miss anything?
Follw the instructions on the page you listed, I found the rate in 5 seconds.
As I said earlier, there may be little value in overcomplicating your US tax return, just to lower the US taxrate, since this will be taken up by canada.
As I said earlier, there may be little value in overcomplicating your US tax return, just to lower the US taxrate, since this will be taken up by canada.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best