Greetings and thanks in advance for any help, advice, and pointers to references you can provide me!
Here's our scenario:
A taxpayer’s family moves to Ottawa from Pennsylvania. This is for the wife to work at a university for the period August 2017 thru June 2018. The university in Ottawa will pay 1/2 her salary (deposited in CAD to a CA bank) and the college she works for in PA will pay 1/2 her salary (deposited in US dollars to a US bank). They are keeping their house in PA. The husband is living in Ottawa, but all of his work is done in the states. Their 1 child will attend school in Ottawa. The wife has W2s and withholding through her home institution (for the IRS). She also has T4s and withholding through her guest institution in Ottawa (for the CRA).
The husband's work is through an sole-proprietor LLC in the United States and he is hoping to be 100% under the IRS with no CRA involvement. He travels to the states monthly for work.
Questions:
(1) Residency - what is the appropriate residency from the IRS and CRA perspectives (for husband and wife)? Is it possible to be considered non-residents of CA, pay only US taxes, and have withholding refunded from the CRA? (This seems unlikely, but would simplify the tax preparation.)
(2) Filing status - it appears that "married filing separately" would be the best to keep the tax situation clear. Does that make sense?
(3) Taxation - I would love some description of how the taxes and credits for foreign payments come together to get to the final numbers for both IRS and CRA. I.e., assume wife makes 30k USD and 30k CAD and the husband makes 50k USD. With appropriate withholding, what will the declared incomes and foreign credits look like on the 1040 and T1
Best,
Mark
One Year US Visitors in Canada
Moderator: Mark T Serbinski CA CPA
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Bubba Gums
- Posts: 54
- Joined: Tue Jul 15, 2014 7:20 am
1) You are both non-residents of Canada. Your tax home is the United States. You likely will not fill out a Canadian return. I would consider your time spent in Canada as a vacation.
2) if you previously filed jointly, I see no reason why that should not continue
3) you will have to do this yourself.
Some thoughts
Do not accumulate more than 10,000 in a Canadian bank account.
Document your wife's foreign expenses(meals, housing, transportation, etc). These may be deductible on form 2106.
You may wish to consider PA state taxes and make advanced payments if for nothing else, than for schedule A.
Is your wife an employee of the Canadian university?
Don't forget about the child credits in both Canada and the US.
2) if you previously filed jointly, I see no reason why that should not continue
3) you will have to do this yourself.
Some thoughts
Do not accumulate more than 10,000 in a Canadian bank account.
Document your wife's foreign expenses(meals, housing, transportation, etc). These may be deductible on form 2106.
You may wish to consider PA state taxes and make advanced payments if for nothing else, than for schedule A.
Is your wife an employee of the Canadian university?
Don't forget about the child credits in both Canada and the US.
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Hobbes2100
- Posts: 5
- Joined: Sat Oct 28, 2017 8:08 am
Thanks for the response, I appreciate it.
Yes, the wife is an employee and receiving salary from the Canadian university. There is also witholding from that income. is she a non-resident even if she is physically residing in Canada and a full-time employee of a Canadian organization?
If we do have to fill out both US and Canadian returns, which one should be filled out first? [Since the other will require some inputs from the outputs of the first one -- at least in my layman's terms and understanding!]
Thanks,
Mark
Yes, the wife is an employee and receiving salary from the Canadian university. There is also witholding from that income. is she a non-resident even if she is physically residing in Canada and a full-time employee of a Canadian organization?
If we do have to fill out both US and Canadian returns, which one should be filled out first? [Since the other will require some inputs from the outputs of the first one -- at least in my layman's terms and understanding!]
Thanks,
Mark
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Bubba Gums
- Posts: 54
- Joined: Tue Jul 15, 2014 7:20 am
Your wife will fill out a return in Canada. Canada is due Apr 1, the US is Apr 15. Therefore, do Canada first.
You say your wife is full time in the last post, but previously you said she was 50/50. You will need absolute clarity on your wife's employment arrangement.
Did your wife join a union?
Does she pay CPP and EI?
Does she have a pension?
How does she get health insurance?
Your wife could be a resident of Canada. She could also be a resident of the US under the treaty.
You say your wife is full time in the last post, but previously you said she was 50/50. You will need absolute clarity on your wife's employment arrangement.
Did your wife join a union?
Does she pay CPP and EI?
Does she have a pension?
How does she get health insurance?
Your wife could be a resident of Canada. She could also be a resident of the US under the treaty.
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Hobbes2100
- Posts: 5
- Joined: Sat Oct 28, 2017 8:08 am
Folks,
Thanks for the responses. I'll do my best to answer the questions. In some cases, my wife and I are in the dark as to the correct official terminology for her employment. I've used quotes (") to indicate terminology that we've received in employment documents ... but I don't know if those are official terms or merely colloquialisms.
Nelson:
(1) My Canadian status is ... My wife's status is ...
(2) PA residency: we own a house, visiting it approximately once a quarter. General US travel for work (for myself) approximately 2 times a quarter. Possible overlap between the two visits. Wife has only left Canada briefly for a vacation but we will return to the US more often during the holidays.
Bubba:
(1) My wife is a full-time, salaried employee of her home institution in PA ... on a sabbatical leave. She is a full-time "affiliate employee" of her Canadian institution. She is not a union member, she does not have a pension.
(2) My wife's pay stub shows deductions for CPP (Canadian Pension Plan is the line item) and EI (Employment Insurance).
(3) No pension information has been provided to us. But, there is the deduction I noted above in (2).
(4) Health insurance was from UHIP (university health insurance plan) and it may transition to OHIP (subject to eligibility that we don't know about yet). The UHIP is paid "out of pocket" after we receive her salary.
Our end goal here (with questions on the forum) is to determine if (1) we need to file Canadian tax documents this year and next year and (2) if we need to retain professional help in doing so. A secondary issue is figuring out *how* to do so. Our US CPA is unfamiliar with Canadian tax law and also with joint US-CAD tax issues.
Best,
Mark
Thanks for the responses. I'll do my best to answer the questions. In some cases, my wife and I are in the dark as to the correct official terminology for her employment. I've used quotes (") to indicate terminology that we've received in employment documents ... but I don't know if those are official terms or merely colloquialisms.
Nelson:
(1) My Canadian status is ... My wife's status is ...
(2) PA residency: we own a house, visiting it approximately once a quarter. General US travel for work (for myself) approximately 2 times a quarter. Possible overlap between the two visits. Wife has only left Canada briefly for a vacation but we will return to the US more often during the holidays.
Bubba:
(1) My wife is a full-time, salaried employee of her home institution in PA ... on a sabbatical leave. She is a full-time "affiliate employee" of her Canadian institution. She is not a union member, she does not have a pension.
(2) My wife's pay stub shows deductions for CPP (Canadian Pension Plan is the line item) and EI (Employment Insurance).
(3) No pension information has been provided to us. But, there is the deduction I noted above in (2).
(4) Health insurance was from UHIP (university health insurance plan) and it may transition to OHIP (subject to eligibility that we don't know about yet). The UHIP is paid "out of pocket" after we receive her salary.
Our end goal here (with questions on the forum) is to determine if (1) we need to file Canadian tax documents this year and next year and (2) if we need to retain professional help in doing so. A secondary issue is figuring out *how* to do so. Our US CPA is unfamiliar with Canadian tax law and also with joint US-CAD tax issues.
Best,
Mark
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Hobbes2100
- Posts: 5
- Joined: Sat Oct 28, 2017 8:08 am
Ugh, I'm sorry. I meant to fill in the statuses while I updated other information.
My status is that I simply have a "visitor record" and when I enter Canada, it is known to the government that I have a family reason for being here.
My wife has a work permit that allows her to work in her specific job (not seek other employment) in Canada.
Best,
Mark
My status is that I simply have a "visitor record" and when I enter Canada, it is known to the government that I have a family reason for being here.
My wife has a work permit that allows her to work in her specific job (not seek other employment) in Canada.
Best,
Mark
Well, because she is an employee in Canada, she will have to file a Cdn return for residents of the province where she works-- at a minimum reporting her Cdn wages.
That does not necessarily make her a resident of Canada, but I would be hard-pressed to come up with a way that she would not be, particularly since YOU have joined her there for a predominant part of her time there.
This makes hef=r (and your) "centre of vital interests" (a treaty term) in Canada, since her job, an abode, and most importantly YOU, are in Canada most of the time.
Were she working in Canada, but taking many opportunities to visit you in your Pa. home, them she could argue that she is still a US resident. But from what you describe, she is a Cdn resident, from the day she got a place in Canada, and will remain so until she leaves.
You will too, until you stop spending time in Canada to the extent you are.
So, my opinion is that you both became residents when you moved up here, and must report world income to Canada. And of course continue to report world income to US because of your US citizenship.
This is a complex situation, so a cross-border expert consult would be in order, especially, to first accurately determine your treaty residence status.
You might want to look at CRA form NR74, which CRA can use to determine residency for those arriving in Canada. If you meet primary ties in that form, and cant out weigh it with a LOT of ties in US, you would be considered Cdn resident. Like I said, I would have advised your spouse to visit YOU in US rather than you come up there, to avoid Cdn tax residency, so that all she would only have had to report her wages in Canada.
That does not necessarily make her a resident of Canada, but I would be hard-pressed to come up with a way that she would not be, particularly since YOU have joined her there for a predominant part of her time there.
This makes hef=r (and your) "centre of vital interests" (a treaty term) in Canada, since her job, an abode, and most importantly YOU, are in Canada most of the time.
Were she working in Canada, but taking many opportunities to visit you in your Pa. home, them she could argue that she is still a US resident. But from what you describe, she is a Cdn resident, from the day she got a place in Canada, and will remain so until she leaves.
You will too, until you stop spending time in Canada to the extent you are.
So, my opinion is that you both became residents when you moved up here, and must report world income to Canada. And of course continue to report world income to US because of your US citizenship.
This is a complex situation, so a cross-border expert consult would be in order, especially, to first accurately determine your treaty residence status.
You might want to look at CRA form NR74, which CRA can use to determine residency for those arriving in Canada. If you meet primary ties in that form, and cant out weigh it with a LOT of ties in US, you would be considered Cdn resident. Like I said, I would have advised your spouse to visit YOU in US rather than you come up there, to avoid Cdn tax residency, so that all she would only have had to report her wages in Canada.
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Bubba Gums
- Posts: 54
- Joined: Tue Jul 15, 2014 7:20 am
I think the treaty makes it clear. You are residents of the United States and non-residents of Canada.
http://www.garygauvin.com/WebDocs/Canad ... Treaty.pdf
You have a Permanent Home in the United States. You have an abode in Canada and the United States. I highly doubt that your abode in Canada could be considered permanent. Why would one establish a permanent home for a sabbatical? That make no sense. If this is the case, Centre of vital interests does not apply. Tax Folio S5-F1-C ¶1.48
Further, both individuals centre of vital interests is in PA. An academic sabbatical leave is understood to be a temporary leave. Your wife is likely classified as an academic visitor. Canada immigration even calls you a visitor. Taking a sabbatical would never involve relocating ones centre of vital interests. There is simply no intent.
Even if there is a debate regarding the centre of vital interests it would only serve to push it down the checklist and in the end your citizenship (USA) would be the deciding factor.
That you do not have Ontario Health Plan and pay for health insurance out of pocket (UHIP) is dispositive. It is an affirmation that you are not a resident of Ontario. All residents of Ontario are eligible for provincial health care. "...landed immigrant status and provincial health coverage..." Note the use of the word AND. Tax Folio S5-F1-C ¶1.25
No need to file NR74. It isn't a requirement. Your wife will file using the Ontario General package. Make sure you read the various instructions for using this form as a non-resident. It is pretty easy if you have experience with the IRS forms.
I previously mentioned to track your wife's expenses as the may be deductible. This is especially true now that i understand that it is a sabbatical. Your wife is away from her tax home for business. http://www.chronicle.com/article/Tax-Pl ... al/126293/
You can take a credit or a deduction for the taxes paid (income tax, EI, and CPP) to Canada. After subtracting the germane deductions on 1116, there might not be much creditable tax so the deduction might be better. Alternatively, if you take the credit and there is an excess, your wife will be able to easily use the carry forward in future years when she travels outside the United States for work.
http://www.garygauvin.com/WebDocs/Canad ... Treaty.pdf
You have a Permanent Home in the United States. You have an abode in Canada and the United States. I highly doubt that your abode in Canada could be considered permanent. Why would one establish a permanent home for a sabbatical? That make no sense. If this is the case, Centre of vital interests does not apply. Tax Folio S5-F1-C ¶1.48
Further, both individuals centre of vital interests is in PA. An academic sabbatical leave is understood to be a temporary leave. Your wife is likely classified as an academic visitor. Canada immigration even calls you a visitor. Taking a sabbatical would never involve relocating ones centre of vital interests. There is simply no intent.
Even if there is a debate regarding the centre of vital interests it would only serve to push it down the checklist and in the end your citizenship (USA) would be the deciding factor.
That you do not have Ontario Health Plan and pay for health insurance out of pocket (UHIP) is dispositive. It is an affirmation that you are not a resident of Ontario. All residents of Ontario are eligible for provincial health care. "...landed immigrant status and provincial health coverage..." Note the use of the word AND. Tax Folio S5-F1-C ¶1.25
No need to file NR74. It isn't a requirement. Your wife will file using the Ontario General package. Make sure you read the various instructions for using this form as a non-resident. It is pretty easy if you have experience with the IRS forms.
I previously mentioned to track your wife's expenses as the may be deductible. This is especially true now that i understand that it is a sabbatical. Your wife is away from her tax home for business. http://www.chronicle.com/article/Tax-Pl ... al/126293/
You can take a credit or a deduction for the taxes paid (income tax, EI, and CPP) to Canada. After subtracting the germane deductions on 1116, there might not be much creditable tax so the deduction might be better. Alternatively, if you take the credit and there is an excess, your wife will be able to easily use the carry forward in future years when she travels outside the United States for work.
The treaty does indeed answer, however, again, in my opinion, it is not quite so cut-and-dried.
As to "permanent abode" CRA does not look at ownership. As long as it is not a temporary residence (dorm, corporate housing, hotel, etc), it is sufficient that if one controls the use and access of the abode, it is permanent. The Folio mentions "individual has arranged to have the dwelling available to him at all times continuously"
So, moving to vital interests, ones employment and ones family are the primary factors of vital interests.
However, I would agree that merely having set up a new home in Canada where both now spend their time almost exclusively still does not make them resident if "he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.â€
As our poster made clear, and I reiterated, it is not her situation that makes them resident, it is HIS joining her in Canada that could make THEM resident in my opinion. Even visitors (he is, she is not) can become Cdn tax residents by treaty. They have, in a very true sense, temporarily forsaken their US abode for their Cdn one, even expressing the desire to qualify for OHIP.
As to NR73/74, I have never recommended filing these forms. However, they are quite useful for the taxpayer to personally evaluate what CRA would be looking for if they were to question residency, as they contain their interpretation of the elements wheich make up residency, abode, and vital interests. Never send an unsolicited NR73 or NR74.
I would support her reporting her Cdn wages only, on a return for the province of Ontario, where she would note that she is non-resident. And he would not file in Canada. However, I believe if CRA would push this, which is unlikely, they could make a case for her (and him) for world income. ESPECIALLY if this sabattical would extend to a period lasting the entire 2018.
As to "permanent abode" CRA does not look at ownership. As long as it is not a temporary residence (dorm, corporate housing, hotel, etc), it is sufficient that if one controls the use and access of the abode, it is permanent. The Folio mentions "individual has arranged to have the dwelling available to him at all times continuously"
So, moving to vital interests, ones employment and ones family are the primary factors of vital interests.
However, I would agree that merely having set up a new home in Canada where both now spend their time almost exclusively still does not make them resident if "he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.â€
As our poster made clear, and I reiterated, it is not her situation that makes them resident, it is HIS joining her in Canada that could make THEM resident in my opinion. Even visitors (he is, she is not) can become Cdn tax residents by treaty. They have, in a very true sense, temporarily forsaken their US abode for their Cdn one, even expressing the desire to qualify for OHIP.
As to NR73/74, I have never recommended filing these forms. However, they are quite useful for the taxpayer to personally evaluate what CRA would be looking for if they were to question residency, as they contain their interpretation of the elements wheich make up residency, abode, and vital interests. Never send an unsolicited NR73 or NR74.
I would support her reporting her Cdn wages only, on a return for the province of Ontario, where she would note that she is non-resident. And he would not file in Canada. However, I believe if CRA would push this, which is unlikely, they could make a case for her (and him) for world income. ESPECIALLY if this sabattical would extend to a period lasting the entire 2018.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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Hobbes2100
- Posts: 5
- Joined: Sat Oct 28, 2017 8:08 am
Folks,
Thanks for the follow ups. It does look like our situation that hinges on the details, and as such, an expert consult will probably be in order. Based on the issues we've discussed, would that more likely be a certified accountant or a tax lawyer?
Based on a cursory reading of NR74, I can see a strong case would be made for non-resident. I also realize that my opinion of a strong case and $1.00 won't get me a cup of coffee (in either country).
Even if the CRA were to seek world income, wouldn't our (US taxes paid on world incomes) - (US deduction/credit for CAD taxes paid) still result in ... approximately ... no remaining CAD taxes due? I suppose that depends highly on factors like specific tax brackets and other deductions.
Best,
Mark
Thanks for the follow ups. It does look like our situation that hinges on the details, and as such, an expert consult will probably be in order. Based on the issues we've discussed, would that more likely be a certified accountant or a tax lawyer?
Based on a cursory reading of NR74, I can see a strong case would be made for non-resident. I also realize that my opinion of a strong case and $1.00 won't get me a cup of coffee (in either country).
Even if the CRA were to seek world income, wouldn't our (US taxes paid on world incomes) - (US deduction/credit for CAD taxes paid) still result in ... approximately ... no remaining CAD taxes due? I suppose that depends highly on factors like specific tax brackets and other deductions.
Best,
Mark
In general the tax rate in Canada is higher than US, so you would have a little more to pay. Besides, foreign tax credits often don't mesh to give a 1:1 credit, ESPECIALLY in years when you only partially out of the US.
It would be best to not have to file in Canada, other than for her wages.
YOU actually control this more that a cross-border tax specialist, by simply demonstrating more clearly in your behavior and actions that you LIVE in US and VISIT your spouse. Then there would be no question.
It would be best to not have to file in Canada, other than for her wages.
YOU actually control this more that a cross-border tax specialist, by simply demonstrating more clearly in your behavior and actions that you LIVE in US and VISIT your spouse. Then there would be no question.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing