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

toledo
New Member



Joined: 07 May 2008
Posts: 2

Posted: Wed May 07, 2008 12:06 pm

 

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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.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 508
Location: Calgary

Posted: Wed May 07, 2008 9:27 pm

 

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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.
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Steve.

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toledo
New Member



Joined: 07 May 2008
Posts: 2

Posted: Thu May 08, 2008 11:53 am

 

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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,

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 508
Location: Calgary

Posted: Thu May 08, 2008 3:00 pm

 

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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.
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Steve.

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cimit
New Member



Joined: 27 Mar 2008
Posts: 3
Location: Exton, PA

Posted: Yesterday at 5:19 am

 

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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,

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 508
Location: Calgary

Posted: Yesterday at 9:13 pm

 

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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.
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Steve.

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