Candian Tax Question

Greetings!

My wife and I have been in the US since 2002 on work visas. I filed for non-residency when I left Canada but didn't received any notification. When we left Canada, we have no assets, and we cancelled/close all licenses, credit cards etc. Since that time, we've decided to move back to Canada but she would move back first. My wife moved back to Canada in Sept of last year and did not work in Canada. I am still living in the US and do not plan on moving back until January 2009. My questions: 1) Does my wife have to file a Canadian tax return for last year (2007)? If we do, do we have to file jointly as we file jointly in the US? 2) Do I have to file a Canadian tax return for 2008 as my wife is now living in Canada in 2008? Thanks so much in advance for any response.

If your spouse or dependents are living in Canada, then Canada Revenue can, and likely will, consider you a resident for tax purposes.

1) Yes she does (legally anyway), plus a 1040 US tax return, probably a 1040-C and probably a 1040NR as well for the last couple of months as it will be a dual status tax year for her. Given that it's now June, she's going to have problems doing that.

Have a good read of IRS publication 519.

2) Yes, because you now have a residential tie. Canada and the US only recognise married couples as having one principal residence for tax purposes.

This is actually a pretty messy situation if you are filing a 1040 and you moved your tax home to the US. You need to file a 1040NR and an 8833 for 2008 and claim a closer connection to Canada otherwise you'll get taxed twice. Then you claim a foreign tax credit with your T1 when you file next year, so you don't end up being taxed twice.

For simplicity I'd claim you moved your tax home to Canada on January 1st otherwise you'll end up also having to file a dual-status 1040.

Have a read of this thread: http://www.canuckabroad.com/forums/rrif ... t3797.html

Hi Steven,

Thanks for the helpful reply! I read the IRS publication and I am still a little confused. Would you mind clarifying some additional questions I have?

1) For 2007 I filed a US joint tax return treating both my wife and myself as resident for all of 2007. Is this correct? I will also be filing a Canadian tax return for the 4 months she is in Canada and including my income from that 4 months on our joint Canadian return. Can I deduct the taxes I've paid in the US from the Canadian return? Is this what you mean by paying taxes twice?

2) For 2008, I will be filing a Canadian tax return filed jointly for the both of us and a US married filing separately return for myself in the United States. Am I entitled to deduct my US taxes from the Canadian return?

3) For 2008, will my wife need to file a US return as she has no US income?

4) As I am planning on leaving the United States beginning of 2009, do I need to be concern about 2009 United States taxes? Is there any paperwork I need to fill out?

I want to thank you again for your response. It is so hard to filter out and digest taxation rules.

Hi Steven,

In addition to my questions above, I would also ask for your advice on whether I should be filing a US tax first and then Cdn taxes for 2008. Or vice versa? Thanks again!

1) No it's not but given that she had no income I wouldn't worry about it terribly. If anyone asks she moved to Canada on January 1st (for tax purposes, you can fudge it because she has to establish residential ties). That's it as far as 2007 goes. For 2008, you both file in Canada because you now have a residential tie. You can file jointly on a T1 or file singly as any other Canadian does. For your US income for 2008 you file 1040NR and claim a tax treaty exemption on Form 8833. Claiming the foreign tax credit is explained in the general guide for the T1 return. This avoids your being taxed twice.

3) No. Although you can file jointly on 1040NR and get the married person's benefit if you want, it's explained in pub. 519. Might be a good idea, thinking about it. Keeps your T1s and 1040NRs consistent.

4) If you move your tax home on January 1st then no, unless you carry on working past that date in the US. Then you will have to file a 1040NR and 8840 for 2009 covering your US income (assuming it's above the filing limit, which is $3,400). If you get to the end of February before you move you will meet the "substantial presence test" and have to file a 1040NR (and 8833) regardless.

Please don't ask me how to fill in Form 8833, that form makes my head spin.

There is a $10,000 limit for "dependent services" e.g. if you were directly employed in the US but didn't earn over $10,000 you're not taxed there. But you still have to file a return if it's over $3,400, so you can claim the tax treaty provision. I think. Never been in that situation.