Hi,
I've just switched from a J1 to an H1 visa (Dec 2004). I've been paying CDN taxes for the last three years because I filled out an NR73 when I left Canada.
How do I get out of paying CDN taxes? Do I meet the substantial presence test this year and then declare to canada that I've emigrated?
Thanks, Mark
H1 visa/CDN taxes?
Moderator: Mark T Serbinski CA CPA
First, just to be precise, you are paying Cdn taxes not simply because you filed a NR73 but, rather, because <u>you were considered a student.</u>
As such, you could not avail yourself of the residency tie-breaker rules, since by IRS regs, you could not count your days as a student towards the SPT.
So, CRA was within their rights to clim you as a resident.
This changed when you became an H1.
Before I elaborate, I would need to know some facts:
1. although you were in US studying, did you maintain other ties that would have made CRA consider you a tax resident of Canada? your own home, wife and kids in Canada...
2. Are there other benefits that you are receiving from Canada that make it advantageous to remain a resident? GST, CCTB, huge capital gains..
3. Finally, have you been reporting you income to IRS? And if so, what income, and if not, what income? have you been filing a 1040NR for any US-sourced income?
<i>nelsona non grata</i>
As such, you could not avail yourself of the residency tie-breaker rules, since by IRS regs, you could not count your days as a student towards the SPT.
So, CRA was within their rights to clim you as a resident.
This changed when you became an H1.
Before I elaborate, I would need to know some facts:
1. although you were in US studying, did you maintain other ties that would have made CRA consider you a tax resident of Canada? your own home, wife and kids in Canada...
2. Are there other benefits that you are receiving from Canada that make it advantageous to remain a resident? GST, CCTB, huge capital gains..
3. Finally, have you been reporting you income to IRS? And if so, what income, and if not, what income? have you been filing a 1040NR for any US-sourced income?
<i>nelsona non grata</i>
1. I have no substantial ties to canada other than family (we do own a small sailboat but I believe that recreational equipment doesn't count as a significant tie).
2. At this point I don't have any advantages to maintaining ties. I will probably move back to Canada in 2-4 years but at this point I'm paying several thousand dollars a year in CDN taxes (likewise my wife is paying a couple of thousand as well).
3. I have been reporting incone to the IRS. I'm actually a research scholar not a student, so I've been filing a 1040NR as has my wife who was working as a J2 (but is now also an H1). The income we've been reporting has been employment income as well as miscellaneous income (my research fellowship).
2. At this point I don't have any advantages to maintaining ties. I will probably move back to Canada in 2-4 years but at this point I'm paying several thousand dollars a year in CDN taxes (likewise my wife is paying a couple of thousand as well).
3. I have been reporting incone to the IRS. I'm actually a research scholar not a student, so I've been filing a 1040NR as has my wife who was working as a J2 (but is now also an H1). The income we've been reporting has been employment income as well as miscellaneous income (my research fellowship).
Good. J1 is a student visa, so for tax purpoises, you were a student in the eyes of both IRS and CRA.
So, you should simply file a T1 this year, with the date you got your H1 (or your wife did, which ever was earlier) as your departure date. Use the instruction in the "emigrants" guide from CRA to calculate your credits, as well as to advise your bank RRSP etc that you are a non-resident.
I'm surprised that you would have paid so much more in cdn taxes, since you can claim the fed tax, state tax, and any SS and FICA that you paid as a foreign tax deduction on your Cdn tax return.
Also, while this may not have solved you overall tax bill, for the entire time that you were in US, you could have filed a 1040, Married filing jointly, since by treaty, all Cdns can do this. This would no doubt have lowered your US tax bill considerably.
I would be reviewing my tax returns for the past few years, since I doubt very much that you should have owed much more that a few hundred to CRA, unless you were making 6-figures.
<i>nelsona non grata</i>
So, you should simply file a T1 this year, with the date you got your H1 (or your wife did, which ever was earlier) as your departure date. Use the instruction in the "emigrants" guide from CRA to calculate your credits, as well as to advise your bank RRSP etc that you are a non-resident.
I'm surprised that you would have paid so much more in cdn taxes, since you can claim the fed tax, state tax, and any SS and FICA that you paid as a foreign tax deduction on your Cdn tax return.
Also, while this may not have solved you overall tax bill, for the entire time that you were in US, you could have filed a 1040, Married filing jointly, since by treaty, all Cdns can do this. This would no doubt have lowered your US tax bill considerably.
I would be reviewing my tax returns for the past few years, since I doubt very much that you should have owed much more that a few hundred to CRA, unless you were making 6-figures.
<i>nelsona non grata</i>
Hi Nelson,
So, you're saying that with our H1 date of Dec.29/2004 we will not have to pay taxes for the 2005 year? Or will we have to pay for the period until we meet the SPT?
Even after adding up all of our US taxes/medicare/fica, etc. we didn't have any CDN federal tax burden, the taxes we were paying were provincial which don't seem to have allowances/credits for foreign taxes.
Thanks for your help,
Mark
So, you're saying that with our H1 date of Dec.29/2004 we will not have to pay taxes for the 2005 year? Or will we have to pay for the period until we meet the SPT?
Even after adding up all of our US taxes/medicare/fica, etc. we didn't have any CDN federal tax burden, the taxes we were paying were provincial which don't seem to have allowances/credits for foreign taxes.
Thanks for your help,
Mark
No., now that you are in a status that allows you to meet SPT, you can consider yourself resident from that point on.
You are incorrect about the provincial tax credits, all the provinces accept whatever is left over from the fed tax credit as a provincial foreign tax credit, and always has, either directly or indirectly. Even Quebec does this.
I'd REALLY suggest that you do these taxes over. The form which allows you to calculate the provincial foreign tax credit is T2036. QC has its own form, <i>naturellement</i>.
<i>nelsona non grata</i>
You are incorrect about the provincial tax credits, all the provinces accept whatever is left over from the fed tax credit as a provincial foreign tax credit, and always has, either directly or indirectly. Even Quebec does this.
I'd REALLY suggest that you do these taxes over. The form which allows you to calculate the provincial foreign tax credit is T2036. QC has its own form, <i>naturellement</i>.
<i>nelsona non grata</i>