Canadian with GC moved back to Canada - dual status?

cmyk · Post by **cmyk** » Thu Mar 05, 2009 10:17 pm

My wife and I (both U.S. GC holders) moved back to Canada last September 2008.

We both have U.S. income from before we moved. I have Canadian income from working for a Canadian company for the month of September. In October I started my own business in Canada and have only had business income as an independent contractor from a company in the U.S.

US taxes:
1. According to the IRS docs we "must" file a 1040-NR since we're considered a dual-status situation...we were non-residents at the end of 2008. However on this forum I keep reading that a 1040 full year is the preferable filing method. What's the best way to file then?

2. Do I simply file a 1116 for the Canadian income?

Canada taxes:
3. Regarding the self-employment income from the U.S. company - since the company only provides a 1099-MISC, no tax has been withheld. On the U.S. side of things, the tax liability is offset by the business deductions. How is this offset on the Canadian tax forms?

Thanks in advance!

nelsona · Post by **nelsona** » Fri Mar 06, 2009 5:53 am

1. Incorrect. As GC holders your MUST ALWAYS file 1040 reporting world income. Always. To file a 1040NR is a violation of your GC, and is grounds for revocation.
But, even if you did not have GC, in the year you leave US you have a choice to file fullyear 1040. This --although it doesn't apply to you -- is clearly explained in IRS Pub 519.

2. For any Cdn tax you paid, you can get credit for them using 1116. For any Cdn wages ONLY you had, you can use form 2555 to exclude them. Try both methods to see.

3. You report all income earned after arrival in canada. For self-employment income, you are entitled to take similar deductions as you do on your 1040. You'll need to get familiar with these.

nelsona · Post by **nelsona** » Fri Mar 06, 2009 5:55 am

... and although your self-employment income is thru a US formed company, since iyt is performed in Canada, its consideed Cdn sourced income, so you cannot take credit for any US tax paid on that income on your Cdn return.

cmyk · Post by **cmyk** » Fri Mar 06, 2009 11:35 am

Thanks for the info, this forum really is invaluable!! :)

RE #3 - So won't I be double-taxed then?

If in the upcoming years I always file a U.S. 1040, declaring the income and deductions, plus I always file a Cdn tax return declaring the income and deductions, where does the Tax Treaty come into play so that I'm not being hit twice?

nelsona · Post by **nelsona** » Fri Mar 06, 2009 12:05 pm

Not much in the tax treaty. But, you will use the normal IRS provisions for foreign tax credits (Form 1116) and/or foreign earned income exclusion (form 2555). the rsult should be little or no tax owing to US.

cmyk · Post by **cmyk** » Fri Mar 06, 2009 1:17 pm

Understood, thanks Nelson!!!

cmyk · Post by **cmyk** » Mon Mar 09, 2009 2:05 pm

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"1. Incorrect. As GC holders your MUST ALWAYS file 1040 reporting world income. Always. To file a 1040NR is a violation of your GC, and is grounds for revocation.
But, even if you did not have GC, in the year you leave US you have a choice to file fullyear 1040. This --although it doesn't apply to you -- is clearly explained in IRS Pub 519."
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So when we file the 1040, will it be ok to use our Cdn home address now and going forward? Or would it be better to use a US address?

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"2. For any Cdn tax you paid, you can get credit for them using 1116. For any Cdn wages ONLY you had, you can use form 2555 to exclude them. Try both methods to see."
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According to the 2555 instructions we won't meet the bona fide residence and physical presence test in 2008 since we moved in Sept.08, we won't be able to use form 2555 for 2008 then correct? We'll have to use 1116?

nelsona · Post by **nelsona** » Mon Mar 09, 2009 2:16 pm

1. You should can use your Cdn address. But remember, GC holders, other than merely filing a tax return, also have to maintain residdnce in US (filing tax is not enough). I assume you have taken care of these immigration issues when leaving US as GC holders. Otherwise you could see your GC removed one time when you try to cross into US.

2. Those who leave US can still use 2555 once they meet the PPT,which for you will occur at some point in Aug or Sept 2009. Most people file an extension, claiming that they need to make the extension until they meet PPT, and then file 2555 at that time. If 2555 is better than 1116 (it may not be,s o do the calcs) then I would not suggest filing 1116 and then amending. File extension (foreign residents get an automatic one, but should file extension proactively), estimate your tax exactly, and then file once, late, but correctly. The 2555 limits will be prorated for the days you were in canada for 2008 divided by 365.
Like I said, 1116 might be best, in which case simply use 1116 forms for all your Cdn income

cmyk · Post by **cmyk** » Fri Apr 03, 2009 2:27 pm

So my big question now is about the U.S. 1040...

To review - my wife and I (both US GC holders), moved back to Canada from the US last September 08. Since that point I've been working as an independent contractor for a US company. The US company that contracts me, sent me a 1099-MISC for work I performed after moving to Canada (prior to this I was employed by them as a fulltime employee).

Despite the fact that I was never in business for myself while in the U.S., will I still need to file the Schedule C and enter the info on line 12 for the 1099-MISC? Or will the 1099-MISC simply go in only as foreign income and then be credited using the 1116 or 2555?

nelsona · Post by **nelsona** » Fri Apr 03, 2009 8:27 pm

Its sched C income. How else are you going to charge your expenses.

Thefe is no such thing as "foreign income: there are wages, pensions, business income, etc, that have a foreign source.