dual citizen living in Canada, question re: marriage

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tdiddy
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dual citizen living in Canada, question re: marriage

Post by tdiddy » Thu Oct 17, 2013 12:31 am

My fiancee has dual citizenship (Cdn/US), I have only Cdn. We have a complicated situation arising as we are looking to start a small medical office togehter. We now have a tax lawyer and accountant who specialize in these sorta things.

But there still remains one question unanswerd... should we get married (not a question you typically ask an accountant :)

We are nearing the common law requirements for the CRA. Once we are common law in Canada, does my fiancee have to file as married filing seperatley in the USA? On the IRS website it just says the IRS recognizes common law if it is recognized in the state you live, does not say anything about those living abroad.

If common law in Canada is not recognized by the IRS, it would probably be worth it not to get married, as she could continue to file US taxes as single. There seems to be a pretty significant difference in taxation for single vs married filing separetly once you get into higher income brackets (say she would make ~300K). Our "team" tells us that since Canadian taxes are higher, it shouldn't be an issue, but this seems like a fairly minor adjustment to really lower any chance of ever paying taxes to the IRS

Any thoughts??

nelsona
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Post by nelsona » Thu Oct 17, 2013 9:04 am

She need only file as married if she actually marries.

I agree with your pros that it is unlikley that she would ever pay more tax to IRS filing married separately vs. singly, buy tou never know what other requirements the iRS will throw in for NRA spouses in the future.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

tdiddy
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Post by tdiddy » Thu Oct 17, 2013 11:18 am

Thanks for the reply!

I think we will hold off on the legal marriage... one less thing for the irs to come after in the future as you said.

It also may come into play if she starts a ULC (unlimited liability cooperation) in the future...

MikeRitchie
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Post by MikeRitchie » Wed Sep 03, 2014 2:57 pm

I am a dual citizen living in Canada and considering getting married to a Canadian citizen. Tax implications shouldn't be the driver of a decision like this, but I want to know what are the implications?

To the best of my knowledge, there are lower income thresholds for MFS than single, but likely US rates still lower than Canadian. The real impact would be the Obamacare tax. My income is currently between the threshold for MFS and single, so there would be a cost to me (3.8% of my investment income which is not inconsequential). A bit of a raise (would be nice) would bring my income over the single threshold so impact would be moot if that occurs.

MFJ probably wouldn't be very appealing to her, and we'd probably be close to the MFJ NIIT threshold anyway.

Are there any other tax consequences I should be considering?

nelsona
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Post by nelsona » Thu Sep 04, 2014 11:00 am

Once married, you can no longer file as single. Your choices become MFJ or MFS. If you file MFJ in any year, your spouse is then required to meet all the filing obligations you have.

Most couples in your situation, avoid MFJ, and also make sure that the non-reporting spouse has all the "nasty" accounts in therir name (TFSA, RESP, PFIC mutual funds, etc) to avoid the US citizen having to report these every year.

You could try to off-load investments into her name. CRA typically doesn't recognize this because of attribution rules, but IRS doesn't care. This would lower your investment income counted towards NIIT.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

MGeorge
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Post by MGeorge » Thu Sep 04, 2014 2:03 pm

Another option, should you have children now or in the future, she could file as "Head of Household" since she will be married to an NRA (you). This has lower tax rates than single.
The NIIT threshold is $200k versus $125k (MFS) - but the wording the instructions for the NIIT tax states that the MFS limits applied when a US citizen is married to an NRA. Sounds like the threshold won't have much meaning in this case anyway.

nelsona
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Post by nelsona » Thu Sep 04, 2014 2:18 pm

Yes, MGeorge, I often forget the HoH option when discussing taxrate and thresholds (since taxrate rarely matters).

And just to avoid confusion, in MIke's case ,which is what we are now talking about, SHE is the NRA, HE is the USC.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

MGeorge
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Post by MGeorge » Thu Sep 04, 2014 3:10 pm

Thanks nelsona - I mixed up the USC with NRA.

Mike, regarding the NIIT, I've come across some position papers stating that there may be a case for taking a treaty position that the NIIT is a Medicare tax and is therefore exempt under the totalization agreements. To this date, I have not heard of anyone making a successful claim in this regard, probably because the NIIT is so new. If you want to become one of the first, here is the reference I was talking about:

http://www.doingbusinessacrossborders.c ... ng-abroad/

I intend to attempt this or the HoH approach, and will keep this forum apprised of any success or problems.

MikeRitchie
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Post by MikeRitchie » Mon Sep 08, 2014 5:39 pm

Thanks guys! Aprpreciate the responses.

I'd love to hear the results of claiming NIIT as a Medicare tax. Certainly seems to me that it should be considered an income tax subject to FTC, or a Medicare tax subject to exemption. But then, not everything makes sense.

CdnDual1
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Post by CdnDual1 » Sat Apr 04, 2015 1:12 pm

I just found this article that claims that people (eventually) have been having success as claiming NITT as a social security tax and thus if you live in a country that has a SSTA that NIIT is not applicable.

http://www.mnp.ca/en/media-centre/blog/ ... income-tax

I was already planning to do this (worth a shot), and now feel more comfortable with it.

MGeorge
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Post by MGeorge » Sun Apr 05, 2015 7:34 pm

Hello,

In my 2014 filing, I took the position that it is a social security tax, and instead of adding form 8960, I added 8275 disclosing my position. I used almost the exact wording from the MNP article. Let's hope it works. I'll keep you posted.
I used TaxACT, and simply put a deduction that reduced the entire tax to $0, and TaxACT suppressed the form (ie. it didn't include it in the filing).

I didn't receive any errors when submitting, so it might not get any attention. I'll keep y'all posted.
Best Regards.
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MGeorge is neither an accounting nor taxation professional.

MikeRitchie
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Post by MikeRitchie » Mon Apr 06, 2015 10:05 am

On 8275, did you refer to SSTA as the Rev. Proc. (column a) and Form 8960 as the applicalble Form (column d)?

I'm actually in the process of moving to the US and will be a US resident for most of 2015. Do you think it's worth it for me to try this given only one year (~$400) benefit?

MGeorge
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Post by MGeorge » Mon Apr 06, 2015 10:15 am

Hi MikeRitchie,

I just put "section 1411" for column (a) and I left column (b) blank. I put form 8960 as the applicable form.

I would say that it doesn't hurt to try. The only risk I could think of is if an examiner believes that there is an "accuracy related penalty" applicable - but given that there is public information suggesting that the position has been accepted for other taxpayers would make the applicability of penalties low risk. Also, you are disclosing the position and it shouldn't be viewed as frivolous or of no ecomonic substance (as they refer to in the 8275 instructions).

I did it for a lot less than a $400 benefit! so I'd say go for it.
------------------------------
MGeorge is neither an accounting nor taxation professional.

nelsona
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Post by nelsona » Mon Apr 06, 2015 11:04 am

I agree with your opionoin that IRS would NOT view this as a frivolous filing.

UI see no ned to worruy about non-accuracy
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

MikeRitchie
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Joined: Wed Feb 22, 2012 7:01 pm

Post by MikeRitchie » Mon Apr 06, 2015 11:11 am

Thanks MGeorge and nelsona!

As always, this site is a wealth of information for dealing with any cross-border tax issues.

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