How much Canadian tax to pay as a Canadian working in US

ottawa · Post by **ottawa** » Mon Jan 23, 2012 12:48 am

Hi,
I am a Canadian Resident, now considering applying a job at California. I am not able to eliminate all my Canadian ties, so going to be considered as a Canadian Resident even though living and working at US.
Now I want to get a sense of how much tax I have to pay to Canadian government each year. I know there is tax treaty between Canada and US. Instead of double taxed, I have to pay the tax difference to Canada.
If all my income is 150K and my wife's income is 80K. In US, I can tax as a family, so the marginal tax rate is about 33%, but in Canada, we are taxed as each individual. For a 150K income, the marginal tax rate is 46% from 130K to 150K and 43% from 90K to 130K. My very rough calculation is around 5K or 7K.

I appreciate everybody's help.

Tao

nelsona · Post by **nelsona** » Mon Jan 23, 2012 12:49 am

Why would you think you need to eliminate "all" Cdn ties.

Once you live and work in US, you are considered US tax resident (and Cdn non-resident) regardless of your ties in Canada.

ottawa · Post by **ottawa** » Mon Jan 23, 2012 1:12 am

Not all, but there are ties that will deem me as a Canadian Resident even though I am living and working at US. For example, my house in Canada and a small inactive corporation but with some profits within it.

nelsona · Post by **nelsona** » Mon Jan 23, 2012 1:46 am

Nope. Neither of these would be considered your centre of viatl interestd. Really, only your spouse remaining in canada would *possibly* outweigh a "deemed non-resident" determination for you.

So, with that in mind, you should be only paying US/Cali tax on your wages.

ottawa · Post by **ottawa** » Mon Jan 23, 2012 3:23 pm

Are you sure about this? I actually consulted an accountant, they clearly told me that I have to demolish my small corporation and sell my house to deem a non Canadian Residency.

Thanks

nelsona · Post by **nelsona** » Mon Jan 23, 2012 6:19 pm

He was incorrect. The treaty (which most accountants do not read) overides this.

The corporation will lose it CCPC status, if it has this, but, since it is dormant, it shouldn't matter to you.

JGCA · Post by **JGCA** » Mon Jan 23, 2012 9:03 pm

Nelsona is right you can treat yourself as US resident and CND non resident, however your CCPC you will need to take into income any Retained Earnings on your departure tax return as a dividend so the CCPC status as non active is not the only concern here, unless your retained earnings are minimal this may be why your accountant wants you to stay and file as CND due to teh deemed disposition of your CCPC shrs when you become non reesident, if teh retained earnings are insignificant then there is no problem saying you are a US resident.

ottawa · Post by **ottawa** » Tue Jan 24, 2012 12:07 am

Thanks nelsona and JGCA, I really appreciate your kind help.
But I have a hard time understand this.

Nelsona, could you explain a bit more on this?
[Quote] However your CCPC you will need to take into income any Retained Earnings on your departure tax return as a dividend so the CCPC status as non active is not the only concern here, unless your retained earnings are minimal[/Quote]
Does that mean that if I want to keep the CCPC status, I need to take all retained earning as a dividend on departure tax? I do have quite significant (or not that much depends on how rich your are) retained earnings. What are my options here? What's the value of keeping the CCPC status?

Thanks

nelsona · Post by **nelsona** » Tue Jan 24, 2012 12:20 pm

JG mde the comment, so he will elaborate, but, no, CCPC means Cdn controlled. You will be non-resident, so cannot by definition be Cdn controller.

JGCA · Post by **JGCA** » Tue Jan 24, 2012 1:33 pm

Once you leave Canada you are deemed to dispose of your shars in the CCPC so this means the FMW of the company shrs USUALLY this means what's on hand in the banks, receivables less liabilities which usually means Retained Earnings without any GOODWILL adjustments which in a small CCPC may not be a factor.

So forget about the loss of CCPC status this means nothing if teh company is inactive anyhow, your tax liab is now what amount do you take into income on teh deemed dispositiopn of the company shares this is probably why your accountant wants you to remain CND resident if possible, now if teh Retained Earnings are insignificant and tehre is no Goodwill buit into teh CCPC its not an issue at all.

ottawa · Post by **ottawa** » Tue Jan 24, 2012 9:43 pm

Thanks JG.

Forgive me If keep asking stupid questions.

If I understand you right, I could make the small company inactive and keep the retained earnings inside without paying any taxes when I declare myself a Canadian non-resident. In the future, can I just simply draw money out of it to pay myself salary, of course, I have to pay the Canadian tax.

Thanks

nelsona · Post by **nelsona** » Tue Jan 24, 2012 10:30 pm

Not the way I understand it. Deemed sale is just that: you are demed to have sold the assets, this you pay tax on departure.

JGCA · Post by **JGCA** » Tue Jan 24, 2012 10:31 pm

You have it wrong. If you have Retained Earnings this is deemed to be the value that you disposed of your shrs once you become a non resident, when you cease CND residency you are deemed to have disposed of all your assets ( with some exceptions shrs in a CCPC are not exempt from this unless there is substancial real estate values built in) on that date so wether or not you take out teh money your taxable anyway.

The dormant part pertains to if you still carry on business while you are a non resident the income will not qualify under teh small business rate its not the major issue here right now the issue is that you will be taxed on teh retained earnings value when you depart and file a departure return that is the issue not how you decide to pull out the money.

ottawa · Post by **ottawa** » Wed Jan 25, 2012 12:10 am

Thanks nelsona and JG.

I think I finally get it. Basically there is no way that I could avoid the departure tax if I want to be a non Canadian residency.

So if I don't declare the non Canadian Residency, I could slowly use the retained earnings to pay my wife salary to avoid the high tax rates. This way I could save some money in a couple of years than disposing all my assets in the first year.

A final question regarding the tax on the retained earnings. All the retained earning is after the corporation tax, around 16% for the profits. If I use the retained earnings as a dividend, am I going to be taxed as a regular income? If yes, then the eventual tax rate will be much higher than regular personal income. For example, a 100K profit will become 84K after corporation tax, if I pay 84K as a dividend on top of a 80K salary, I will have to pay another 30%+ tax, so only 58K in my pocket. If the 10K is the personal income, I will have 73K in my pocket.

blairgoates · Post by **blairgoates** » Wed Jan 25, 2012 1:11 am

You can get a CRA opinion by completing the following form and sending it into CRA: http://www.cra-arc.gc.ca/E/pbg/tf/nr73/nr73-11e.pdf