Unclear how to file in US/CAN and how canada will deem us

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Unclear how to file in US/CAN and how canada will deem us

Post by gordito »

Hey everyone,

It's now time to start thinking about filing our taxes both in US and Canada. We were both working and living in US for several years now. My wife worked until the end of May and then moved up to Canada with our son in June so she actually spent less than 183 days and I thought she should be able to file with 8840 asking for closer connections to a foreign country. I stayed in the US until early August so well past 183 days, so can't do the 8840. How can I file my taxes if both countries will deem me resident?

Looking at the CRA form, it seems likely Canada will deem me resident since I moved here in Aug into a house owned by my wife and with our kid which went into daycare in sept and yeah.. I was applying for a PR which I became in Nov. So how would I deal with US also deeming me resident, which I will given the residency test. I was living in Canada while working for US remotely after August 8.

We typically filed jointly married in US - good advantage there - but now not sure we will be able to do so.

I'm planning on filing the CRA questionnaire for them to tell me how they will consider me and my wife but I'm pretty sure they will consider us residents.. unless there's a good reason for me not ask them :)

My naive approach was to file jointly in US the 1040 and declare the her foreign income from Canada and then file in Canada claiming the tax payments we did to US. To complicate matters, we will also need to deal with Revenue QC. My wife really is keen on hiring an accountant but I'm still trying to see if we can figure this out with some guidance.
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

I was reading the rules for newcomers to canada and it appears Canada will only care about my income after I moved to canada - makes sense - and they say that I will be deemed resident as of the day I moved while in the process of a PR application, so that would be Aug 8.

But I will still need to declare to US my world income and will be taxed on it, but I guess I get some of it back from Canada due to the treaty ?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

8840 doesn't really apply when you are leaving US in any event.
You are allowed to file a joint 1040 for 2017, and can exclude your CDn wages by using form 2555.

You are not "deemed" anything. You are a newcomer to Canada. Deemed resident and deemed non-resident have specific meaning which do not apply to your situation. No need to file NR74; it is pointless.

You should no longer be a US employer for
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

... you should no longer be a US employee for your firm, they need to set up Cdn payroll.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

For them, they see me as a remote consultant. I know several people in this situation and I thought they were paid into a US bank account. They have yet to pay me as a consultant.. should they pay me directly to a Cdn account instead of a US? That will definitely make them not happy I'm guessing..
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

As a consultant is fine. Just not as a US employee.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

I was reading a bit about the form 2555 and it seems that it is aimed at US citizens or residents. Does that mean Green card holders? We are neither.. I was on a H1B visa and my wife on a TN. She's Canadian but I'm not. Thanks!
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Yes, you can use 2555, using the 1-yr period after you move, to meet the PPT test for 2555.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

This means in TaxAct I just use the PPT test ? I did it and entered 213 days and seems like it worked?...

But it then asked me to add "Form 1040 FEC - Foreign Employer Compensation and Pensions" and I entered the same USD value for the CAD income. Does this sound reasonable?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I don't answer software questions.
If it gives the desired result...
Remember that you do not pay SE tax on your consulting income, because you live in canada
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

Actually, TaxAct is not happy...

"The entries for the physical presence test section of Amber's Form 2555 do not qualify to claim the foreign earned income or housing exclusion.
The total number of days in the foreign country must be at least 330.
"

I believe I had done before as a Bona Fide Test before I read your answer. Almost there...
gordito
Posts: 22
Joined: Thu Apr 09, 2015 2:37 pm

Post by gordito »

Reviewing shows that it is not happy either with Bona Fide Test. I enter that she left on 5/21 and has has not ended but taxAct says:

"The entries for the bona fide residence test on Amber's Form 2555 do not qualify to claim the foreign earned income or housing exclusion.
The residence period must be for an uninterrupted period that includes an entire tax year (January 1 - December 31). If your bona fide residence has not ended, check the box below."
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

To meet PPT when leaving US, you generally cannot do so until you have been out of US for 330 days, so most have to wait to file until that period is up, sometime this summer. Then you will get a prorated maximum exclusion amount based on the days in Canada on 2017.
Not an uncommon occurrence, so I'm sure taxact handles this correctly.

You are not allowed to do Bona fide, because you have not met the calendar year requirement either, and won't until end of 2018, so it can't apply to 2017 income anyway.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Since both of you are claiming 2555, and you have US income from before your move, you may also want to try scenarios wehere you use 1116 on your eaned income instead of 2555. That might reduce your US tax more than 2555.

But this has ben started way too late.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
MaggieA
Posts: 150
Joined: Sun Oct 31, 2004 4:06 pm

Post by MaggieA »

In case it's not clear, because I found this confusing when it applied to me, you can use PPT to claim 2555 on your US return for the year you moved out of the US, so long as you wait to file the tax return until you've actually been 330 days out of the US. The way to do this is to file for an extension on your US taxes, then wait past your 330 day point, then file your 2017 US return.
Post Reply