dual citizen needing tax, residency information

kacie2103
New Member



Joined: 11 Jul 2008
Posts: 1

Posted: Fri Jul 11, 2008 8:59 am

 

---

I am a dual citizen, Canada and U.S., currently living in U.S., but considering moving to Ontario. Is there an up-to-date online source of information regarding taxation of retirement accounts held in the U.S.? Does one have to file a Canadian income tax return if there was no Canadian income?
What I really need is some planning advice to help me make the decision on where to establish residency, so I don't have some unpleasant surprises. Any recommendations?
thanks

---

Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1068
Location: Calgary

Posted: Fri Jul 11, 2008 3:25 pm

 

---

The IRS website is a good place to start, there is an IRS publication for non-residents. Retirement accountants going from the US to Canada are not as complicated as the other way around, because under US law all US citizens must file a 1040 return every year until they die, regardless of where they live.

Essentially a 401(k)/IRA is not a tax shelter under Canadian tax law, but you can keep your current investments, you just can't contribute to them anymore. In a nutshell, but read up on it because there are various caveats.

Once your tax home moves to Canada (i.e. you form residential ties to Canada) then you are taxed in Canada on your worldwide income and you must file a T1 every year. And a 1040 for the US. To avoid dual taxation you file Form 2555 with the IRS and claim a foreign tax credit for the tax you pay in Canada. You declare foreign assets to the CRA every year valued over $100,000 (hint - excluding vacation homes) on Form T1164.

Currently there is a ceiling on the US foreign tax credit, not sure what it is for 2008 but for 2007 I think it was $85,700 for single payers. Which means if your income is more than that a year you face dual-taxation. There is a bill in Congress at the moment to repeal the limit but it doesn't seem to be making much progress.

Note that even if you renounce US citizenship it doesn't help that much as even former US citizens have to file a US tax return for ten years. The only advantage is that it removes the ceiling on the foreign tax credit, but you are still subject to expatriation tax on US-source income which kicks in at a higher limit.

Based on my experience with my own family and comments on here, the IRS will come after you if you leave and don't file a 1040 every year as required, especially if you are a high earner.
_________________
Steve.

---