Do canadians living in US pay Taxes to government of Canada?

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toledoNew Member
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Joined: 7 May 2008

Do canadians living in US pay Taxes to government of Canada?

Post Wed May 07, 2008 1:06 pm

Hi all,

I am new to this forum.

I was wondering if Canadian living and working in U.S. under TN Visa, are required to file income taxes to the government of canada, since they do normally to the U.S. government?

I am talking here about working as an employee and not owning a business.

Can someone please comment on this.

Thanks.
StevenCanuckAbroad VIP
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Location: Calgary

Post Wed May 07, 2008 10:27 pm

Read this: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

Basically you do both, and you claim a foreign tax credit in Canada for any tax you paid in the US. (Although the tax credit may not fully cover it depending on what it is and you may have to pay extra tax in Canada on top of whatever you paid in the US, depending on the situation - or you may even get a refund).

The IRS gives funky advice on the phone if you ask them, IMO, and that's not just what I think, the IRS guy himself told me that at a seminar I went to once. They don't understand Canadian tax law so the advice they give won't necessarily be either (a) legal or (b) the best way of doing it.

Generally speaking unless you are 100% sure that you will be living in the US permanently it's best to keep your tax home as Canada. The only reason to move it otherwise is if you are absolutely certain that you will save a ton of money on tax moving your tax home temporarily to the US, and you're okay with the mountain of paperwork that will generate.

The one thing a lot of people trip over on is the Canadian exit tax, they don't figure that into their calculation (which is a capital gains tax on the fair market value of your assets when you left), but there are many other snags to doing it. E.g. you have to cut residential ties to Canada, which can be awkward, especially on a TN-1, because USCIS look for residental ties to show that you aren't permanently entering the US.

Also read the instructions for the T1 return carefully, it explains in there how to use your W-2, claim the tax credits, do the exchange rate calculation etc.
Steve.
toledoNew Member
Topic author
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Joined: 7 May 2008

Post Thu May 08, 2008 12:53 pm

Generally speaking unless you are 100% sure that you will be living in the US permanently it's best to keep your tax home as Canada. The only reason to move it otherwise is if you are absolutely certain that you will save a ton of money on tax moving your tax home temporarily to the US, and you're okay with the mountain of paperwork that will generate.


Thanks Steve for the information. That is real helpful to me.

Can you please elaborate alittle more on "Tax home" and "moving tax home temporarily to US" ?

Because, I am working in U.S. under TN visa, and if I file my income tax in the U.S. then should I (do I require to) file any income taxes to Canada, for the period of the time that I was(worked) in U.S? This is the part that I am confused.

Thanks,
StevenCanuckAbroad VIP
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Location: Calgary

Post Thu May 08, 2008 4:00 pm

Read that CRA pamphlet. Yes, basically you file two returns one in Canada and one in the US (1040NR) with attendant paperwork. The instructions for the T1 return cover the Canadian end. Phone up the IRS and get them to send you the full 1040NR package in the mail which has all the instructions.

Your tax home is basically up to you, technically it's where you are ordinarily resident and you have "ties". Moving your tax home temporarily to the US is not a one-sentence answer, it means a mountain of paperwork. If you can't work out what it means, then really, don't do it. Don't even think about doing it. There are huge implications from doing it, cutting all residential ties, filing paperwork with the CRA, possibly paying the exit tax, then filing a ton of paperwork with the IRS when you arrive e.g. dual-status return (which means two returns usually) and a ton of paperwork when you leave to say that the US is no longer your tax home and then finally a ton of paperwork with the CRA to say you are resident again when you come back, pro-rated personal exemptions, etc.

Like I said, don't even think about it unless you really think you're going to save serious money doing it, because slip up on any step and you can face penalties and/or dual taxation for whatever you forgot to do. There have been court cases where the person came back, forgot to cut some residential tie, and the CRA decides they were resident while they were away and wants all those back taxes, with penalties.

It's really only advisable to move your tax home if you are moving permanently. Generally if you are going to come back to Canada, your tax home is best kept as Canada and you carry on filing a Canadian return.
Steve.
cimitNew Member
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Joined: 27 Mar 2008
Location: Exton, PA

Post Mon May 12, 2008 6:19 am

Hi Steven,

I have read the link (that you have posted many times BTW, thanks for doing that) and I am still confused on this topic. Here is my situation:

Single, no dependents. Transferred with my company on an L-1B in 2007. Moved to the US on May 1, 2007. I have no home (lived with family) and no other income other than from my employer. I do hold a personal RRSP and LIRA. My car and personal belongings all came with me to the US. I do maintain a Canadian bank account that does not generate any interest income.

The company I work for is doing my taxes for me for 2007 as part of my relocation package (having a tax firm do it actually). The firm has already completed my Canadian taxes and I have filed them, and made payment for the income paid by the US, but was earned while still living in Canada. My US taxes should be done soon (they filed an extension on my behalf). I did not see any different forms (ie. a T1) as part of the package.

Should I have declared to the company doing my taxes that I want to maintain my tax home as Canada? I thought that I would pay my Canada taxes and my US taxes and just file seperate returns, which I believe is what they are doing.

My intention would be to move back to Canada before my L-1B visa expires. Therefore, my time in the US will be less than 3 years. Based on what you have posted elsewhere, am I to file a Canadian tax return for 2008 even though I would have no income in Canada this year? It would appear that you are stating this, but I could be wrong.

Also, if I am to maintain my tax home as Canada, I am wondering if I should re-file my 2007 return?

Any advice would be appreciated.

Thanks,
StevenCanuckAbroad VIP
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Location: Calgary

Post Mon May 12, 2008 10:13 pm

Yes, you carry on filing a Canadian return as well as a 1040NR. And you must remain a resident of Canada as well as it merely being your tax home, i.e. you must have some sort of residential ties (although something tells me the CRA isn't going to check too hard if you volunteer to carry on paying Canadian taxes). If you become non-resident the US automatically considers you resident under the tax treaty (which is a fun read - should of read it sooner). Basically what it means is that you carry on filing the T1 for wherever you used to live in Canada.

Frankly I never trust tax accountants, software or anything like that for personal returns (corporations, maybe). Sit there with a pencil and all the instructions and figure it out. Even if they get it right, they may not do it in the most advantageous way. Only you know the answer to that.

The instructions for the T1 explain how to file if you have US income. You claim a foreign tax credit in Canada so you don't pay tax twice.

Really you need to figure out what they filed, there's a lot of stuff that isn't obvious, for example the T1164 if you have foreign assets over $100,000 (excluding your principal residence and vacation home). They're not going to know what your assets are. Plus they might have done something dumb like declaring that you left Canada on it, which means you can't contribute to your RRSP anymore, etc.

On the US end you need to file a 1040NR and whatever paperwork goes with it, which is detailed in the pamphlet. Worth getting publication 519 from the IRS as well. If you've only got a W-2 it's pretty straightforward.
Steve.
eddycurrentsCanuckAbroad Regular
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Post Tue May 20, 2008 12:50 pm

Similar post here:

http://www.canuckabroad.com/forums/tn-v ... t3609.html

Same advice from me: if you are going to live in the US for more than a year, declare yourself non-resident so you won't have to pay any Canadian taxes.

If you plan to keep property and bank accounts in Canada though, your declaration will probably be denied. Any ties to Canada will count against you, except for RRSPs (they don't count). I got away with a Canadian bank account and a credit card because I had a reason for it (no US credit).

For me, about 5 years ago, there was no mountain of paperwork. All I remember is a form with a covering letter.

However I did have to say I had no immediate plans to return to Canada. That was the truth -- I do expect to return to Canada someday but have no idea when. Maybe never.

Unfortunately in order to get a TN visa, technically you are supposed to have immediate plans to return to Canada. So getting a TN visa sort of contradicts declaring yourself a non-resident of Canada. I didn't know that at the time. Ignorance is bliss.

Fortunately US immigration and Revenue Canada don't see the contradiction. If they ever get together they may decide to close this loophole and we will have to start paying Canadian taxes. Even if that happens (doubtful) we haven't lost anything we wouldn't have lost anyway.
cimitNew Member
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Joined: 27 Mar 2008
Location: Exton, PA

Post Wed May 21, 2008 6:49 am

I'm thinking I am in the same situation, except that I am here on an L1-B (intercompany transfer).

The transfer is for a minimum of 2-years, and right now I am thinking that I will return as the job is not what I expected it to be. For 2007, I did file a tax return since I had income for 4 months while I was still living there. For 2008, I will have no income, since I only have RRSP's. I do have a bank account and a credit card still. No property or other assets to speak of.

I hoping to just pay US taxes this year, and then when I return to Canada next year, pay US taxes for the US time and Canada taxes from the time I became a resident again.
cripesNew Member
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Joined: 12 Apr 2009

Re: Do canadians living in US pay Taxes to government of Canada?

Post Mon Apr 13, 2009 6:02 am

i have the same issue. moved to the US mid 2007 on an inter-company transfer. I am still paying CPP and EI and am receiving interest from my bank accounts and Canadian investments. Do i have to file Canadian taxes on top of my U.S. forms? If so, which forms?
StevenCanuckAbroad VIP
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Location: Calgary

Re: Do canadians living in US pay Taxes to government of Canada?

Post Mon Apr 13, 2009 5:12 pm

This is answered further back in the thread, click on the link to the CRA website.

Either you're resident in Canada, in which case you file a T1 and claim a foreign tax credit, as well as filing a 1040NR in the US, with an 8840 if you've been there less than 183 days or with an 8833 if longer than that and you earned over $100,000.

Or you're resident in the US. If you've been resident the whole year you're the same as the average American with some minor wrinkles, if you have an RRSP you have to file an 8891 for example. Likely you have to file a FinCEN FBAR form as well to declare foreign accounts.

If you moved during the year and want to be resident in the US for tax purposes, you have to file dual-status which is explained in IRS publication 519. On the Canadian end you file a pro-rated T1 for the portion of the year you were in Canada.

If you're resident in the US you must sever residential ties in Canada, e.g. DL, healthcare card and so on. Declare to the bank you're no longer resident for tax purposes.

Bear in mind if you move your tax home to the US you may get hit with Canadian departure tax: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

Which is why saving a load of tax by moving to the US doesn't always work out as well as you think it may at first glance.
Steve.

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