Tax Implications of Floating Between the US and Canada

[MisterLane]

I am a US citizen by birth and obtained PR status in Canada in early 2007. I own a home in the US and rent a home in Canada. I would consider my center of vital interests closer in the US due to my history there.

I spend about 5 months in Canada each year, the remainder in the US. Since 2007, I have maintained employment in the US, with no income from Canada. This past year that changed as I now have Canadian income from a Canadian company and still maintain employment in the US also.

I would consider myself a floater, spending enough time in Canada (which I love) to maintain my PR, but also enough time in the US to maintain my ties there (I also love my home town). However fortunate I consider myself to be able to pursue this lifestyle, there must certainly be tax implications of straddling the fence. None the less, here are my immediate concerns:

For 2007 and 2008, I considered myself a non-resident in Canada (after reviewing Article IV of the tax treaty, I must have talked myself in to believing this was so) and with no Canadian sourced income did not file in Canada. I now know that the true determination of residency is in the eyes of the CRA, not the tax treaty. Have I made a mistake in not filing based upon my self-assessed non-residency status?

Secondly, now that I have Canadian income, I must file for 2009 in both the USA and Canada. I am extremely confused as to if I report world income in both countries and then use foreign tax credits against each other, or if there is a better option. I would assume that in the eyes of the US, I am not a bonafide resident of Canada and thus cannot exclude foreign income on form 2555, and must instead use foreign tax credits. But in Canada, do I use a treaty exclusion on line 256 or do I use foreign tax credits as well?

Also, are there any immigration concerns regarding how I file taxes in Canada?

Any suggestions would be sincerely appreciated.

[nelsona]

You are still a cdn non-resident.

"I now know that the true determination of residency is in the eyes of the CRA, not the tax treaty." Really, the treaty trumps CRA (and IRS). CRA can only say thay you are residnt by their rules. Once you are considered resident of both countries by their own regulations, like you, then the treaty decides.

In short, as long as you don't spend more than 183 days a year in Canada, you will still be US resident by treaty.

The tie-breaker would come down to citizenship and days.

Merely having Cdn income does not mean you file as Cdn resident. You report the income (if you have to --that is another question) on a non-resident return.


You would report all income earned anywhere on your US return. Foreign tax credits would be used to reduce the US tax on the Cdn income.

As to your Cdn income being reportable in canada. If you are self-employed, you would only be taxable if you spent 183 days in any 365 day period.

[MisterLane]

Thank you kindly for your prompt reply.

Would I thus fall under the "deemed non-resident" as stated in this article, since I do have residential ties in Canada?
[url]http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... s-eng.html[/url]

Am I correct in assuming that since I have always been a non-resident, I do not need to file any returns for the years that I did not have Canadian sourced income?

My income in Canada is not self-employment income. It is a Canadian corporation, and thus taxes are being withheld. It is based upon this that I determined I should file the Canadian return for 2009 (non-resident as you instructed).

Just to confirm, for 2009, I will report Canadian source income only on a Canadian Non-Resident return. I will file a US return as normal, including Canadian income, and use the tax paid in Canada as a credit on the US return.

I cannot thank you enough for your assistance... as I cannot count the number of nights over the past few years I've lost sleep over these concerns.

[nelsona]

Sounds about right.

Is this your corporation, or are you colelcting fees from this corp.

[MisterLane]

No, this is not my corporation, and I am not collecting fees. It was contractual employment for a handful of months, over which I collected a salary.

When filing a non-resident return, is it permissible to reference my Canadian address, or does that raise questions with the CRA? At the same time I doubt using my US address for what implications I might be making about my immigration status.

The 183 day rule, is that from January 1st through December 31st? Or is this in any floating 365 day period? Also, where in the treaty is this mentioned?

I have always looked at Article IV paragraph 2A, 2B, and 2C. Even if I secured full time employment in Canada and spent more than 183 days a year in Canada, but also maintained employment in the US, the center of vital interests remains questionable, correct? At what point does one's center of vital interests transition from one country over to the other? As long as vital interests were not clearly defined, I'm assuming an individual could point to 2C and say "I'm a citizen of the US!" and that would be that.

Sorry, I don't mean to ramble on.

Can you tell me, in the event my center of vital interests does change over to Canada (i.e. take a full time job in Canada), I'm assuming I would need to file a resident return in Canada and report worldwide income, file a return in the US reporting worldwide income, and then use the dueling tax credits?

[nelsona]

I would put your US address.

The 183 day would make you a deemed resident by Cdn rules, and then might tip you on centre of interests.

Your Cdn immig status is not in play just because you put a non-Cdn addrss. You can be out of Canada for over 1000 consecutive days with no impact to PR status.