Tax residdent or not? Pls help

[mpanjwan]

First, I want to appreciate what your firm has done here. It has provided people like us privileged and accurate information and guidance which is priceless through this forum. Thank you very much, Mark and Stephen and your team.

Scenario
My wife is on visit visa and both children (15 and 9) are on study visa(specialized Learning Differences school) in Ontario, Canada. The basis of her and kids visa is that reason (children with an adult caretaker) and have it for 4 years ending in 2018.
I fly in every month and stay for week to 10 days with my family. Wife and children entered 9/2014 school year and have been there since. They've traveled back to U.S during Summer of each school year. This school year will be 3rd year.

We are renting a house, do not own any property in Canada, do not work or earn in Canada, do not own a Canadian drivers license or any other financial commitments from Canadian companies, Do own a bank account which has US/CAD account in one with a credit card. All income earned is in USA and money is transferred to CAD bank for taking care of expenses. All utilities are in landlords name.

1. Are we considered tax residents of Canada?
2. I own a business in USA as an S-Corp. Do I owe taxes here. Do we need to file any tax return (showing expenses only in CAD, info only) 2014/2015?
3. Do I need to show my US (foreign bank and as

Thank you.
_________________
MP

[nelsona]

First off, the fact that you and your family rent a home in Canada as opposed to own a home makes no difference in determining your tax resident status. The factor to consider is that you have a home in Canada (and presumably one in US as well).

So, really it comes down to (a) if you were ever Cdn resident before, and (b) how much time you spend in Canada vs. how much time your spouse spends in US.

So, were you ever a Cdn resident? If so, then my opinion is that you have not done enough to break Cdn ties to become non-resident. Otherwise, since you both spend about the same time at each other's home and were never resident of canada, you could claim that you REMAIN non-resident.

Your spouse however is definitely a Cdn tax resident.

What is your status in US, and what is your spouse's status in US?

[mpanjwan]

Thank you for being so prompt. I sincerely appreciate you giving me more insight into this.

Replies:
No we have never been Cndn Residents ever. Both my wife and I are US Citizens.

My wife spends 10-11 mos of the year in Canada due to schooling while I spend about 120-150 days in Canada visiting them.

Due to the amount of days spent in Canada by my wife and her being considered a Cndn tax resident, what implications are there that we have to render on her behalf since she is an employee of our company and earns payroll currently.

[nelsona]

You are not a Cdn tax resident, but your spouse is. There is a risk that you could be considered resident if you spent more time in canada, so be aware of that. It is not the amount of days she spends in Canada that makes her resident,; it is the fact that she overwhelmingly lives in Canada.

Since she is a Cdn tax resident, she must report all HER world income to Canada, regardless of source.

You will both continue to report world income to IRS as well. You would need to follow any foreign reporting requirements (FBAR, FATCA, etc, for any foreign assets either of you hold). generally, any tax that she owes in Canada can be used as a credit on your joint US return (Form 1116).

Her employment income is sourced where she does the work, so she is in effect a Cdn employee of your firm, at least part if not all the time, and needs to be taxed and withheld accordingly. You may wish to make her a contractor.

I should also point out that neither you nor she have legal work status in Canada, so any work you do, regardless that it is for a US firm, still must follw the rules of immigration Canada, which I would suggest you see a Cdn immigration lawyer about.

[mpanjwan]

how would changing her to a contractor versus an employee change tax implications?

Currently we have not sourced any employment in Canada, only are using our US funds to take care of expenses in Canada.

Regarding immigration, my next questions was alluding to applying for Permanent Status in Canada through ICT Intra-company transfer.
Can you share info about this please in relation to our current status.

[nelsona]

As I said, if she is working in Canada, THAT determines source, not you the employer.
The difference is that she should be paying Cdn "Fica" which is CPP and EI premiums, and paying income tax each pay to the CDn and province gov't.
Since she is Cdn resident she cannot exempt any wages from Cdn taxation.

A contractor would take care of this themselves at tax time.

[mpanjwan]

Ok I see how changing to contractor would make the accountability different in terms of remitting taxes to government.

So from your last comment, even I, the husband/father who's visiting his family time and time again, could be considered a Cndn tax resident having certain amount of time spent in Canada?

Would tax resident status be a hurdle in applying for PR in Canada through Intra-Comany transfer?

[nelsona]

Having a spouse in Canada is a very important factor in making you resdent. If you stayed more than 1/2 your time in Canada, you would become a yax resident and reamin so until your family left.

These other matters are immigration issues to be discussed elsewhere.

[mpanjwan]

Being considered a tax resident (earnings are all in USA, living in Canada out of schooling reasons hence only paying out expenses) will mean to file tax documents for information reasons only or will there be taxes due to Canadian Government from US earnings, though nothing is being earned in Canada? If that is the case, is there a percentage?

[nelsona]

If and when you become tax resident of Canada, you report all income earned worldwide to Canada (you continue to do so in US due to US citizenship).

Since Canada's tax rate is typically higher than US, you will owe some tax money to Canada.

But as I said, you have a bigger problem if you are working in Canada without proper authorization, more than a tax problem.

I'm going to leave this thread at this point.