Advice On Moving From Windsor To Detroit?

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bbradyc5
Posts: 8
Joined: Wed Oct 05, 2005 7:13 pm

Advice On Moving From Windsor To Detroit?

Post by bbradyc5 »

My wife and I are planning on moving from Windsor to Detroit in the next 6-12 months. She is a US citizen (currently a PR in Canada) and commutes daily to Detroit for work. I am a Canadian citizen working in Windsor. I am in the process of trying to get work with a company in the Detroit area, but it may take up to a year for this to happen. Is there any advantages/disadvantages to us moving before I start my employment with the US company? Am I going to end up paying more taxes overall than we are paying in our current situation if I stay with the Canadian employer?

I also understand it is probably to my advantage to close out my RRSP's after moving to the US and only being responsible for the 25% withholding that the CDN government will take. Is my employer contributed locked RSP Pension Plan with Standard Life collapsable in the same manner?

Final issue is possibly taking advantage of this "only 25%" withholding tax taken from RRSP's once you become a non-resident. If I am planning to move right before the end of the year (ie responsible for CDN taxes for most of 2005 income), is it advantageous to use up my RRSP eligibility before I leave which essentially will cause my income to be taxed at 25% instead of regular income tax rate bracket that income would normally fall into? To help determine if this is worth it, my 2005 income is around $70k
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

If you are working in Canada and decide to move to Detroit, it will invariably cost you more in taxes than your current situation, as you will now have IRS and MI tax to pay as well as Cdn and Ontario tax. Even if the Cdn tax could somehow be used to reduce the IRS tax 100% (it won't) you could do nothing to reduce MI tax. Your RRSP contributions would also lose theri appeal since they wouldn't be deductible in US.

The converse is also true, that if you live in Ontario and work in MI, your tax situation will be worse than it is now, since your spouse will no longer be able to use you as a 'deduction' on her taxes, and your income will be added to hers. In this case however, the more favourable manner in which Canada credits foreign tax (IRS.MI. SS and Medicare tax all qualify) you might not end up paying more, and you would still be building deductible RRSP contribution room.

The ideal situation, since you both work, is to both live and both work in the same tax jurisdiction.
Your RRSP however would be almost entirely tax-free in US upon withdrawl, and the 25% tax in Canada would be all you would pay.

It certainly is a good idea to use up your RRSP room in a high salary year such as you have. You don't HAVE TO contribute before you leave, but you are better off doing so, as well as making absolutely sure that your RRSP is in a self-directed account which you will be able to trade in Michigan (you have to ask specifically) and you also would want to crystalize any gains in the account before leaving as the <i>BOOK</i> value rather than the market value on the day you enter US will determine your US tax on any enventual withdrawal.

The employer-sponsored LIRA is more problematic in that (a) you probably can't break it even as a non-resident (if it is Ontario-regulated) and (b) this account would most likely under new rules, also be fully taxable in US upon withdrawal, so you would be paying more like 40% tax on it in the end.



<i>nelsona non grata... and non pro</i>
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