Potential dual tax residents and implication

CanuckWashington
New Member



Joined: 18 May 2008
Posts: 1
Location: USA

Posted: Sun May 18, 2008 10:55 am

 

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Hi all, great advice I see in his forum. I have a complicated scenario. Many thanks head of time!

Background:
I am a Canadian who was in the U.S. on an F1 student visa from 2002 to 2005 (accumulated around $85k worth of Canadian federal and provincial tax deduction from the tuition/fee credit carried forward). Then I stayed in the U.S. for the past 3 years on H1B visa so I became non-resident of Canada and pay tax as a resident in the U.S. Now, I am thinking about moving back to Canada on June 1, 2008.

How do file tax return for 2008? Am I a dual-resident of both countries? I assume that I am a tax resident of Canada because I will meet the 183 days of presence in Canada by end of 2008 and I will be U.S. resident alient due to having met IRS' substantial presence test.

But how does tax get calculate in someone like me with two tax homes? Due to Canada-U.S. tax treaty, do I choose one primary tax base and pay all my required tax there, before filing a tax return for the second tax base and only pay for the difference in taxes owed to the two tax bases (thereby avoid double taxation)? Do I have a choice on which one to designate as tax base #1 (so I pay them tax first before paying the tax difference on tax base #2)?

One big concern is, I have $85k Canadian federal and provincial tuition credits from all my schooling in the U.S. I want to use it up soon. If I make less than $85k this year, all my income will not be taxed in Canada. But due to my tax resident status in U.S., would IRS look at it and say, since you didn’t pay any tax in Canada at all, we need to tax you on your income, full amount, and without the Canadian tuition credit? In other words, my Canadian tuition credits would be useless.

If that’s the case, can I claim to be non-resident alien in the U.S. by making sure I don’t stay in the U.S. for more than 183 days in total and make sure all my belongings are sent back to Canada along with a steady paying job in Canada (i.e. use the "substantial connection to a foreign country" clause to get out of being a U.S. tax resident despite meeting IRS substantial presence test).

Thanks for your help. This is a lot of info and assumptions.

Oh, do you guys have a good accountant on either side of the border who can help me?

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 819
Location: Calgary

Posted: Mon May 26, 2008 8:55 pm

 

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And here's another example of why you shouldn't move your tax home to the US temporarily. Sorry, shouldn't laugh.

You can't have two tax homes, it's either Canada or the US so figure that bit out first. Not simultaneously anyway.

Residential ties in Canada are different than the US. Canada considers 90 days of presence as resident for tax purposes, or establishing any other signficant tie, e.g. getting a job in Canada or a DL, etc.

The simplest advice would be to remain a tax resident of the US until the end of the year. It will save you a lot of paperwork.

From the sounds of your plan you'll have to file a 1040 for the first six months of 2008 and a T1 for the last six months and possibly a 1040NR for the last six months as well, or it might be the 1040-C depending on your specific circumstances. Have a read of the instructions for the 1040-C.

The tuition credit issue is going to be complicated to work out because you moved your tax home, so it will probably only apply for the period that you remained a resident of Canada for tax purposes, that's something you will have to talk to the CRA about or a specialised tax advisor.

Your plan to beat the substantial presence test won't work, it's not just 183 days in any calendar year, you've already met the substantial presence test for 2008 based on being resident in the US for the last few years.

Have a read of: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

This explains the substantial presence test in more detail.
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Steve.

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