Determining CDN residency status / tax treaty?

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gpacino
Posts: 22
Joined: Thu Mar 10, 2005 4:25 pm

Determining CDN residency status / tax treaty?

Post by gpacino »

I am wondering about determining my residency status in Canada for 2005. Here are my circumstances:
- All income from U.S. sources. No income from Canadian sources.
- Spend roughly 50% of my time in US, 50% in Canada (weeks at a time in each location)

Per the US-CAN tax treaty: (these are the tie-breakers)
- "Permanent home": I rent an apt. in each country.
- "Center of vital interests": job is in U.S., car is in U.S., but spouse is in Canada
- "Habitual abode": same as "permanent home" (?)
- Citizenship: USA

I am sure that when I am in Canada, i'm a resident. But when i'm living in the USA, I think I would be "otherwise" considered a resident of Canada; however, i'm also a resident of the USA. I don't know how CRA would look at the tax treaty tie breakers in this situation, but for the time i'm living in the USA, would I be a non-resident of Canada?
nelsona
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Post by nelsona »

As long as you spend more than 183 days a year in US, you can claim that you are a "Deemed non-resident" for Cdn tax purposes, which means you file a Cdn return, reporting world income, and then deducting all US-source income from your return on the last deduction line (256?).

If you spend more than 183 days a year in Canada, CRA takes the position (and IRS would agree) that you are a "Deemed resident" for tax purposes. You would report world income to CRA, and then get credit for any US tax paid.

These 2 classifications are made for people just like you, where residency is not cut-and-dried.

In either case of course, your US tax status does not change: you report all income on a 1040 (Married). Any Cdn tax you end up paying can be used as a deduction (but not a credit) if you itemize.

You do not swing back and forth in terms of residency status. Both IRS and CRA take one's situation as a whole, and changes to such situations, when determining residency.

They also put a lot of stock in actual day counts. Your US citizenship is also important, but your wifes Cdn residency equals that in my opinion.


My advice would be to count your days, make sure they are over 183 in US and call yourself a deemed non-resident. keep in mind that you need certain amount of days in canada for Provincial health coverage, and in your case, in the long run for Cdm immigration purposes.


<i>nelsona non grata... and non pro</i>
gpacino
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Post by gpacino »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

As long as you spend more than 183 days a year in US, you can claim that you are a "Deemed non-resident" for Cdn tax purposes, which means you file a Cdn return, reporting world income, and then deducting all US-source income from your return on the last deduction line (256?).

If you spend more than 183 days a year in Canada, CRA takes the position (and IRS would agree) that you are a "Deemed resident" for tax purposes. You would report world income to CRA, and then get credit for any US tax paid.

These 2 classifications are made for people just like you, where residency is not cut-and-dried.

In either case of course, your US tax status does not change: you report all income on a 1040 (Married). Any Cdn tax you end up paying can be used as a deduction (but not a credit) if you itemize.

You do not swing back and forth in terms of residency status. Both IRS and CRA take one's situation as a whole, and changes to such situations, when determining residency.

They also put a lot of stock in actual day counts. Your US citizenship is also important, but your wifes Cdn residency equals that in my opinion.


My advice would be to count your days, make sure they are over 183 in US and call yourself a deemed non-resident. keep in mind that you need certain amount of days in canada for Provincial health coverage, and in your case, in the long run for Cdm immigration purposes.


<i>nelsona non grata... and non pro</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Which is more important (if I want to be a canadian non-resident):
- spending >= 183 days in USA
- spending < 183 days in Canada

Time spent in a 3rd country would count against me if I need 183 days in USA, but would not hurt if I just need to limit days in Canada.

Second question: in counting days, who gets the travel day(s)? Ie, I'm in Canada in the morning, fly to the USA in the afternoon. My guess is both countries would want those days to count as in "their" country. How does that work?

Thanks!
nelsona
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Post by nelsona »

Ideally, you would want to spend more than 1/2 your days in US.

The second best would be more days in US than in Canada.

You need either of these to legitimately say that your are more US than Cdn.

Having the 183 days in US, doesn't give CRA any leg to stand on if they should claim you are a full-fledged resident, as you would likely win a treaty claim.

However, Your goal should be to avoid having to get into a residency scrap with CRA, as it will likely cost you more to prove your non-residence than it would to simply pay your Cdn tax bill. And it could cost you your Health coverage.

Unless you live in Quebec, you might find that simply treating yourself asa Cdn resident costs very little if anything, and would allow you to use RRSP etc.

If you are in QC, your tax savings would be substantial by being non-res, but remember MRQ is quite free to come to their own conclusion with regards to your residency, and they aren't bound by the treaty: Without the treaty, you are a Cdn tax resident, by virue of your spouse.

<i>nelsona non grata... and non pro</i>
gpacino
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Post by gpacino »

Unfortunately, I am in Quebec. That's my #1 problem, since if I just file as a resident, I can reduce what I owe CRA to nothing (foreign tax credit) but it doesn't leave much Foreign Tax Credit to reduce what Quebec wants (so i'll owe them quite a bit).

If I was able to get away with non-residency in CRA's view, wouldn't that still be a big win? That way, even if MRQ said I was a resident and I had to report my worldwide income to them, could I not reduce what I would owe them (possibly to 0) by using the Foreign Tax credit?

Obviously i'm trying to cut down what I owe Quebec. I'm already considering paying as much as possible to the IRS (by filing married-filing separately, since my wife's not a US citizen nor resident), so I can get more foreign tax credit against Quebec.

Problem solved next year - LEAVING QUEBEC!

BTW when you mention "lose health insurance", do you mean temporarily? I'm new to Canada to begin with and never applied for it. I have ins. in the USA. Eventually i'll want Can. health ins. though (probably next year).
nelsona
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Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I can reduce what I owe CRA to nothing (foreign tax credit) but it doesn't leave much Foreign Tax Credit to reduce what Quebec wants (so i'll owe them quite a bit).<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

This is the same in every province. The CRA has graciously decided to have foreign tax credit reduce Fed income tax first, allowing the provinces to keep their tax revenue. Almost no one with US income pays any Fed tax on that income after the application of foreign tax credit.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">could I not reduce what I would owe them (possibly to 0) by using the Foreign Tax credit?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

This would work.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I'm already considering paying as much as possible to the IRS (by filing married-filing separately, since my wife's not a US citizen nor resident), so I can get more foreign tax credit against Quebec.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

I'd be wary of doing this. Canada (and its provinces) are only obliged to accept the tax that you are legally obligated to pay as eligible for the credit, not more, and the treaty further limits their exposure to the tax that a US non-resident would pay. So 'overpaying' your US tax, by whatever means, will likely backfire, forecing you in the end to ammend in US to correct your US tax.

CRA is quite familiar with the US tax code, and you do have to submit your US return when you request the foreign tax credit.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I'm new to Canada to begin with and never applied for it. I have ins. in the USA. Eventually i'll want Can. health ins. though (probably next year).<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

The provincila plans all require that you be resident in that province to be a member. There are differences between the amount of physical presence required each calendar year to maintain eligibility.

<i>nelsona non grata... and non pro</i>
gpacino
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Joined: Thu Mar 10, 2005 4:25 pm

Post by gpacino »

Thanks for the info.

I'm really not sure if it's worth it to try to claim non-residency. The 183 days in Canada/USA will be very close, and would probably come down to how Canada decides to count the days that i'm in both countries. If they are strict and claim i'm "in" canada even though I leave the same day for the US, it would not work for me. I don't want to fight it either.

Besides, if I claim $0 taxable income, wouldn't that give me $0 RRSP deduction limit next year? (assuming I already have $0, thus have no carryover).

So I could go a risky route and try to save big this year, but end up having to pay more next year. I know the argument, it's always better to pay less tax now so that you can use that money to invest, etc.. but in the end my savings might not be that great ($5000 or so) and might end up with trouble with CRA by filing an incorrect return.
Not sure if it's worth it.


nelsona
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Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Besides, if I claim $0 taxable income, wouldn't that give me $0 RRSP deduction limit next year? (assuming I already have $0, thus have no carryover).<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Yes, that is why I said, two posts ago...

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Unless you live in Quebec, you might find that simply treating yourself as a Cdn resident costs very little if anything, and would allow you to use RRSP etc.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

<i>nelsona non grata... and non pro</i>
webcite_99
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Post by webcite_99 »

This is a good string, and I have a few questions that I was hoping you could expand on:
______________________________________
"As long as you spend more than 183 days a year in US, you can claim that you are a "Deemed non-resident" for Cdn tax purposes, which means you file a Cdn return, reporting world income, and then deducting all US-source income from your return on the last deduction line (256?)"
_______________________________________

1) If he has deemed himself non-resident, why does he need to file a Cdn return? Is it because his wife is a Cdn resident? Had they both been self deemed non-Cdn residents (i.e. both 183+ days in US and strong ties to US) could they simply not file any Cdn return at all and be in the right?


______________________________________________
"in counting days, who gets the travel day(s)? Ie, I'm in Canada in the morning, fly to the USA in the afternoon. My guess is both countries would want those days to count as in "their" country. How does that work?"
______________________________________________

2) I didn't see an answer to this question. How are days counted?


________________________________________________________
"Unless you live in Quebec, you might find that simply treating yourself as a Cdn resident costs very little if anything"
__________________________________________________________

3) How are the taxes different in Quebec from other provinces?



Thanks in advance for the follow-up as I might be in a similar situation soon.



Rick
nelsona
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Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">If he has deemed himself non-resident, why does he need to file a Cdn return?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

It is never the person that determines whether one is a "deemed non-resident" or a "deemed resident", as the 'deeming' is done by CRA. Remeebr, we are talking about the 2 specific defeinitions, as aopposed to 'factual resident or factual non-resident.

Look over the definition of a "deemed non-resident" and you will see that this is someone who must file a tax return in Canada, and then exclude his treaty-country income. It is not the same as soemone who is a factual non-resident, with no primary ties. A "deemed non-resident" HAS primary ties (in this case his spouse in canada), but outweighs them with treaty-country ones. Only CRA can make this determination, and as such. makes the rules as to how one must report their WORLD income.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">How are days counted?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Any part of a day in canada is counted.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">How are the taxes different in Quebec from other provinces? <hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

They are higher than all but the small under-populated prioinces out east.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"> I might be in a similar situation soon.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I somehow doubt that, since I believe you are a Cdn citizen and not US, while the poster here is USA citizen only, which, as I pointed out is important in this thread.
If you were in the same situation as him, you would be Cdn resident, with no hope of being found to be 'deemed non-resident'

<i>nelsona non grata... and non pro</i>
webcite_99
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Post by webcite_99 »

Thanks for all of the clarifications. As for your last comment, my factual situation is that I am a US citizen and my wife is a Canadian citizen living with me in the US on a green card. We are thinking of spending 5 months next year in Canada for her maternity leave and then coming back to the US. I just want to make sure that we are simply visiting and do not have to file any Cdn tax return, etc. I also want to make sure that we do not over-stay the 183 days.

Rick
nelsona
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Post by nelsona »

Ah, then this thread is on point.

As long as you maintain all your current US ties (ie. don't go selling/renting out your US house or get a job in Canada, or an appartment in Canada) you should be fine.

<i>nelsona non grata... and non pro</i>
Vijayjain36
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Post by Vijayjain36 »

We have the similar situation, however, me and my wife are both Canadian. Can we be considered "deemed non-resident"? If not how our tax situation will work. Both of us have spent more than 200 days in US.
Thanks
nelsona
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Post by nelsona »

"Similar situation" is too vague.

Similar to what?

<i>nelsona non grata... and non pro</i>
Vijayjain36
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Post by Vijayjain36 »

Me and my wife both are Canadian citizen. I am working in USA. We have rented apartments in Quebec Canada and USA.

Can we be considered "deemed non-resident"? If not how our tax situation will work.
Both of us have spent more than 200 days in US.
All income from U.S. sources. No income from Canadian sources.
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