Working in US, better to have US vs Canadian residency?

[skongalong]

Hey Guys!

I was wondering if people have any insight into the advantages/disadvantages of working in the US and keeping/losing Canadian residency?

My husband and I are currently working in the US on TN visas and we have kept our Canadian residency so he can take advantage of some Foriegn Employment tax credit (I'm not eligible for it but he is). However, he has now been offered a full-time job here and I am being laid off. If he takes the job here, then we would switch to L1/L2 visas, and I'm not sure what we should do about Canadian residency. We plan to return to Canada eventually, maybe within 3 years or so.

What are the requirements for US/Canadian residency? Can we be a resident of both at the same time? Is there a tax advantage/disadvantage? Any other considerations?

Thanks,
Sharon

[nelsona]

If you live and work in US, you are US resident by treaty, and Cdn non-resident. It's not choice

Better than foreign employemnt tax credit is the rigth to not pay Cdn tax at all.

[skongalong]

This article implies that it's possible to be a resident in both countries.

http://www.irs.gov/pub/irs-pdf/p597.pdf

"Article IV provides definitions
of residents of Canada and the United
States, and provides specific criteria for applying
the treaty in cases where a taxpayer is considered
by both countries to be a resident."

[nelsona]

Yes, you first need to be considered resident of both countries, and then the TREATY breaks the tie.

That is the definition of resident "by treaty."

Otherwise you are simply resident or non-resident.

You are non-resident of Canada by treaty. canadacalls these deemed non-residents, and treats these exactly like factual non-residents.

This is to your benefit.

[skongalong]

Yes, you are right! Sorry, I'm really new at this! The Gov of Canada website says this:

"You become a deemed non-resident of Canada when your ties with the other country are such that, under the tax treaty, you are considered a resident there."

http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... s-eng.html

[skongalong]

What a surprise!

My husband and I are from Vancouver BC but we have been working in Boulder CO on TN Visas with a Per Diem housing allowance. A tax consultant told us that it would be better to remain a resident of Canada for tax purposes during this time to take advantage of a foreign tax credit (only his job qualified, mine didn't) and/or something that makes our Per Diem tax-free. My husband has now been offered a full-time job in Colorado (no more per diem or housing allowance) so I have ran the income tax numbers to see how much less tax we'd pay in the US. Turns out my simple calculations show that we would pay more tax in the US! What a surprise! My calculations show that Canadians pay about ~3% less income tax... My example is very simple as it has no tax deductions, tax credits, capital gains, dividends, children, nor real estate (that pretty much describes us anyway). Is my example too simplified? Do the more extensive tax deductions in the US make up the difference? Why does everyone think income taxes in the US are so much less than in Canada?

Not sure how the formatting will come out, but here's my analysis below...

[b]Canada and US Income Tax Comparison[/b]
Simple comparison using no tax deductions, tax credits, capital gains, dividends, children, nor real estate

[b]2009 Canadian Income Taxes (including BC provincial tax) [/b]
Canadian Tax http://www.taxtips.ca/calculators/taxcalculator.htm

Status Single Single Single x 2
Income 100,000 75,000 150,000=75,000x2
Federal 17,759 11,517 23,034
BC 7,270 4,313 8,626
CPP 2,119 2,119 4,238
EI 732 732 1,464
CAN Total 27,880 18,681 37,362
[b]CAN Avg % 27.9% 24.9% 24.9%[/b]


[b]2009 US Income Taxes (including Colorado state tax) [/b]
Federal Tax http://www.dinkytown.net/java/Tax1040.html
Colorado Tax http://www.colorado.gov/cs/Satellite/Re ... 6842266485
FICA Tax = http://ssa-custhelp.ssa.gov/cgi-bin/ssa ... =955648479
SS + Medicare http://taxes.suite101.com/article.cfm/f ... roll_taxes

Status Single Married Married
Income 100,000 100,000 150,000
CO Rate 4.63% 4.63% 4.63%
SS Rate 6.20% 6.20% 6.20% Up to 106,800 of income
Medi Rate 1.45% 1.45% 1.45%
Federal 19,102 12,700 25,200
Colorado 4,630 4,630 6,945
Soc Sec 6,200 6,200 6,622
Medicare 1,450 1,450 2,175
US Total 31,382 24,980 40,942
[b]US Avg % 31.4% 25.0% 27.3%[/b]


[b]Canada vs US Comparison [/b]
Compare percentages so no exchange rate needed

Status Single Married
Income 100,000 150,000
Can % 27.9% 24.9%
US % 31.4% 27.3%
[b]Diff -3.5% -2.4% [/b]
Approx $ -3,502 -3,580


[b]Notes:
Canadian income taxes are LESS! [/b]
US FICA taxes are ~8K while Canadian CPP+EI are only ~3K
US allows more tax deductions than Canada including: mortgage interest, property taxes, health spending account, tax preparation costs, etc.
Deducting mortgage interest and property taxes in the US may be enough to tip the balance?
However, deducting those may cause forfeit of the basic personal deduction (~7K) so maybe not a huge difference?

[nelsona]

Your per diem is not necessarily tax-free in canada.

[nelsona]

Be wary of those who tell you that to remain non-resident, when you are employed by a US employer. This is often a scam.

[nelsona]

Employemnt income is ALWAYS taxed in the place where the work is done FIRST, so the Cdn taxrate means nothing.