Canadian working in the US and spouse in Canada

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forest
Posts: 3
Joined: Sat Jan 27, 2018 4:36 pm

Canadian working in the US and spouse in Canada

Post by forest »

Hello, I'm hoping someone can point me to the right direction for 2017 tax returns.
Here is my situation:
• Canadian Citizen married to Canadian Citizen and no child
• worked for Canadian firms in Canada until mid July 2017 and moved to Michigan working for a US firm on a TN visa, never worked in the US before
• Canadian income and US income was both over $50,000
• currently renting a house in the US
• using the substantial presence test for US tax purpose, I spent 121 days in 2017, 10 days in 2016 and 18 days in 2015, so a total of 128 days for 2015-2017
• spent 233 days in Canada
• co-own a house with spouse in Canada (spouse living in since I left) and have all kind of ties with Canada (bank accounts, RRSP, TSFA, investment, vehicle…)
• co-own a rental house in Florida, filed 1040NR for rental income since 2013, never paid tax to IRS though
• co-own a small business with spouse based in Canada
• spouse worked for a Canadian firm in Alberta for the entire year of 2017, no plan to move unless she can find a comparable job (not an easy thing)
• if spouse cannot find a job in Michigan, most likely I will move back to Canada in August 2018

My questions:
For two scenarios: 1) I move back to Canada later this year 2) my spouse moves to Michigan sometime this year
• What is the best way to file both Canadian and US tax returns?
• Could I even file as non-resident in Canada given all the ties I have in Canada?
• For filing US tax, should I use 1040 married filing separately or 1040NR?
• Is there any benefit to open an IRA or Plan 457 account for my 2017 income? If there is, what is the deadline to make contributions to these accounts?

I really appreciate any advice on this matter.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You are really in the enviable position of getting to choose -- simply -- which way you want to file.

Since you left Canada to live and work in US, you *could* have declare yourself treaty non-resident of Canada if you nted to, with a departure date of mid-July. Had this been your goal, you would have strictly stayed in US, NEVER returning to Canada to visit family (having them instead visited you). All the other ties in canada would not have mattered. I suspect however, that given your proximity to Canada, you probably visited regularly, thus NOT making US your center of vital interests, so that option went by the wayside.

So, for Canada, you need to file as a resident for 2017.

Given that, and given you neither became a treaty resident of US, nor did you meet the SPT for 2017, you should file a 1040NR. If you wanted to fiel a 1040, it would need to be full married jointly 1040 in order to benefit you. married filing separately is not a favorable way to file.

besides, since you did not address many of the accounts you keep in Canada, the reporting of these accounts in US would be a nightmare for both of you.

So, your best bet is 1040NR, reporting only US income, and then reporting all income on your Cdn returns, and taking credit for US taxes. There are lots of posts here on how to do that.
You might also want to take a look at filing a 1040NR based on the treaty (article XXV) . Again. lots of info on that . You would do this if you fins that your 1040NR tax is too high (in the sense that you cannot use up all the US tax as a credit on your Cdn return).

Going forward however, you need to be looking at some of your Cdn accounts and business and getting rid of these IF your spouse moves to US. That event will be the moment that you both will become -- no choice here -- US tax residents. TFSAs are a hassle in US and not tax-free; you would need to sell yoru investments, and your Cdn company loses Cdn status preferential tax rate.

If you do not want to become US tax resident because of being in US "rtoo much", then you need to keep visiting Canada, and keeping all those ties.

An IRA would probably not be useful to you, since it would not reduce your Cdn taxes. An employer-sponsored plan might be useful, to thee extent that you get matching form the employer, or you could wait until spouse moves.

So, you are walking a fine line for the next few months, needing to prepare yourself to divest of a some things in Canada if your spouse decides to move to US, but needing to keep those things in the meantime, if she decides not to move.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
forest
Posts: 3
Joined: Sat Jan 27, 2018 4:36 pm

Post by forest »

Nelsona, this is great and it answered all my questions for 2017 filing. Thank you so much for your help.

Questions for 2018:
If I end up moving back in August, can I file as resident in the US from Jan-Aug given the favorable tax rate in the US for 2018? Then I file as resident for Canada from Sept-Dec?
In this case, my spouse will be working full-time in Canada for the entire year. Can I even file a married jointly 1040 for both of us from Jan-Aug 2018?

If I file as resident in the US, I can easily withdraw all money invested in my TSFA account since I can buy back when i move back to Canada. What should I do with my RRSP and government pension accounts in Alberta?

Thanks
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

To get the favorable tax rate in any year, you must file FULL YEAR 1040, and in your case, Married filing jointly. If you do this you will need to report all items as I described above. Since you still have the TFSA, its is too late to avoid that reporting for 2018. Just file 1040NR (or 1040NR with special XXV calculation) and use 8833 to show you are using the treaty to say you are Cdn resident by treaty).


You cannot file in Canada as a returning resident, since you never left. So you will report all year's income, like in 2017. You will only be considered as having left Canada when your wife joins you in US.

Even if you were moving to US, you would not need to do anything with your RRSP and pension accounts, other than inform RRSP that you are US resident, which may require them to ask you to move your account to another broker.

As I said, given the hassles of filing as a US resident, and given that your spouse has not decided to join you, you are likely better off just filing 1040NR using the special provisions of XXV.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
forest
Posts: 3
Joined: Sat Jan 27, 2018 4:36 pm

Post by forest »

Nelsona - this is very helpful and saved me lots of time to do research on my own. You are the best. Many thanks.
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