Hello,
My wife and I are planning on moving to Canada at the end of this month, arriving in B.C. by June 30. My wife is Canadian (GC holder), I am a U.S. citizen with a permanent residence application in process (officially, I will be "visiting" until that process is complete). At this point we may indeed come back to the US within 2 years, so there are GC issues we're also contemplating (but that's not the main focus of my question right now.)
The main question I have now is regarding the tax implications of my wife's current job here in the States. They are planning on giving her a "lump sum" payment in June (while we are still residing in the US) for "telecommuting" work she will do later this summer and fall when we will be residing in Canada. When it comes time to file US and CDN taxes, "where" will will that "lump sum" income be considered to have been earned: in the US or in Canada?
Frankly, I'm not so much concerned for tax advantages/disadvantages vis a vis Canada/US taxes as much as for being upright and doing the "right thing" in reporting the income.
Any input would be much appreciated!
KNP
Moving to Canada/Reporting Income
Moderator: Mark T Serbinski CA CPA
Hi Nelsona, thanks for replying.
She's been getting paid on a w-2 basis up to this point, so I am assuming that will be the case, but I will get back to you on that with an exact answer soon (the details are being finalized this week). I hate to sound naive, but what are the implications one way or the other (w-2 or 1099)?
Ken
She's been getting paid on a w-2 basis up to this point, so I am assuming that will be the case, but I will get back to you on that with an exact answer soon (the details are being finalized this week). I hate to sound naive, but what are the implications one way or the other (w-2 or 1099)?
Ken
Hello,
In all likelihood she WON'T be paid any more beyond the lump sum--this is sort of a "summer job" for her that she has done the last 3-4 summers.
Her main income after this will be a gov't of Canada SSHRC research grant for her dissertation research, which will kick in starting in September (income which we will exclude on the 1040 when we file it next summer--with the automatic extension we should meet the residency requirements to do so).
In other words, here is what it looks like:
May-June: working in US for US-based company (w-2 income), lump-sum payment (likely w-2 income) made for rest of summer work.
July-August: working in Canada for US-based company (but already paid via lump sum at end of June).
September onward: working in Canada on dissertation (fellowship income from Gov't of Canada).
I hope I have not made it more confusing! Thanks.
Ken
In all likelihood she WON'T be paid any more beyond the lump sum--this is sort of a "summer job" for her that she has done the last 3-4 summers.
Her main income after this will be a gov't of Canada SSHRC research grant for her dissertation research, which will kick in starting in September (income which we will exclude on the 1040 when we file it next summer--with the automatic extension we should meet the residency requirements to do so).
In other words, here is what it looks like:
May-June: working in US for US-based company (w-2 income), lump-sum payment (likely w-2 income) made for rest of summer work.
July-August: working in Canada for US-based company (but already paid via lump sum at end of June).
September onward: working in Canada on dissertation (fellowship income from Gov't of Canada).
I hope I have not made it more confusing! Thanks.
Ken
It would appear that she will not have to report any of the W-2 wages in canada. So her 'newcomer' return for 2005 will likely only include any income she RECIEVES after arrival.
As you note, her 2005 1040 (filed jointly with you) will include all income from all sources, but she will be able to use 2555 to exclude the grant as soon as she meets the foreign presence requirements.
As an aside, even if she would not meeet the requirement by the June 15th filing date, a simple extension until she does meet it would be filed.
<i>nelsona non grata... and non pro</i>
As you note, her 2005 1040 (filed jointly with you) will include all income from all sources, but she will be able to use 2555 to exclude the grant as soon as she meets the foreign presence requirements.
As an aside, even if she would not meeet the requirement by the June 15th filing date, a simple extension until she does meet it would be filed.
<i>nelsona non grata... and non pro</i>
We are in a dispute with Revenue Canada right now about this issue. CRA's position is that they WILL collect tax on income generated by a job performed in Canada. WHO pays the wages is immaterial. WHEN the wages are paid is immaterial.
In our circumstances, Canadian vacation pay was paid out for five months after we arrived in the US. We argued (with Mark's help) that we should not have to pay Cdn tax on this, that we would pay US tax on this. CRA has been very aggressive for more than a year, and despite being quoted about Treaty article XIV they insist on dinging us. It has been very costly so far. Just beware CRA. They interpret guidelines and treaties to their own advantage, even if it's contrary to other guidelines with the US which they have agreed to.
In our circumstances, Canadian vacation pay was paid out for five months after we arrived in the US. We argued (with Mark's help) that we should not have to pay Cdn tax on this, that we would pay US tax on this. CRA has been very aggressive for more than a year, and despite being quoted about Treaty article XIV they insist on dinging us. It has been very costly so far. Just beware CRA. They interpret guidelines and treaties to their own advantage, even if it's contrary to other guidelines with the US which they have agreed to.
Pam, the big diff that I see in your case was WHEN you recieved the money.
CRA has ALWAYS held that money RECEIVED after arrival in Canada is taxable in Canada, be it your last paycheck, your severance, or the collapse of your 401(k)/IRAs. Fighting about this is a lost cause.
I have long told people heading back to Canada to INSIST that they get any US-source income paid to them BEFORE going back.
The poster in this case is RECEIVING the money before heading back, completely the opposite of your situation.
Now CRA would be within their right to argue that Cdn tax shoudl be paid on this money received for future work. Trouble is that it is hard to prove, as opposed to your case, with checks arriving at your bank every couple of weeks
<i>nelsona non grata... and non pro</i>
CRA has ALWAYS held that money RECEIVED after arrival in Canada is taxable in Canada, be it your last paycheck, your severance, or the collapse of your 401(k)/IRAs. Fighting about this is a lost cause.
I have long told people heading back to Canada to INSIST that they get any US-source income paid to them BEFORE going back.
The poster in this case is RECEIVING the money before heading back, completely the opposite of your situation.
Now CRA would be within their right to argue that Cdn tax shoudl be paid on this money received for future work. Trouble is that it is hard to prove, as opposed to your case, with checks arriving at your bank every couple of weeks
<i>nelsona non grata... and non pro</i>
You would think that since CRA insists on taxing income received (from the US)after returning to Canada, then the IRS would be equally adamant about getting first dibs on taxing Cdn-sourced income received (vacation pay)after taking up residence in the US. And that treaties would sort this out. But, no, CRA insists on taxing Cdn-sourced income regardless of when it was received. I find it very confusing, and expensive. At any rate, we will now make sure that any US sourced income is received before we head back to Canada in a year's time.
In a way IRS DOES 'encourage' the reporting of world income in the year of move, by an unfavourable non-residency tax rate (when you report US-only income).
By the way, if indeed you did receive Cdn-source income AFTER your residency starting date in US, you should have reported it to IRS too.
In either case, the foreign tax credits would somewhat reduce your other-country tax.
Too bad you had to pay to find all this out.
<i>nelsona non grata... and non pro</i>
By the way, if indeed you did receive Cdn-source income AFTER your residency starting date in US, you should have reported it to IRS too.
In either case, the foreign tax credits would somewhat reduce your other-country tax.
Too bad you had to pay to find all this out.
<i>nelsona non grata... and non pro</i>