Questions on Taxes....

angelito_g
New Member



Joined: 17 Jul 2008
Posts: 8
Location: BC

Posted: Wed Aug 06, 2008 10:10 pm

 

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More questions from a beginner like me.

1. Taxes - As a worker in the US, would I have to pay taxes on both US and Canada?

2. Can someone provide a link that shows the tax percentage (per salary range) in California? I would like to have an idea (or estimate) on how much I am going to pay.

Many Thanks.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1676
Location: Calgary

Posted: Thu Aug 07, 2008 11:08 am

 

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

If you're going there temporarily the California rate is irrelevant as it's probably lower than in BC and you claim a foreign tax credit in Canada for the tax paid in the US. Bit tricky for California as they have a significant State income tax, but I'm pretty sure you can claim a credit for it in BC.

But long story short you end up paying the rate in BC overall after you pay in the US and deduct it from your Canadian taxes.

It is not a wise idea to move your tax home to the US for a great many reasons which you can research in the various threads on this forum where people have run into problems doing it. Only makes sense if (a) you are 100% certain you will be able to stay permanently and you plan on doing that; or (b) if you save enough money on taxes to pay a really good cross-border accountant familiar with all the forms.

Top ten reasons not to do it (many others):

1. US authorities hate people moving their tax home to the US and then moving it back to their home country, and then at some future date moving it back to the US again (in fact they generally won't let you do it if you gave up LPR status to move your tax home out of the US);
2. Creates a wide variety of complications with RRSPs, RRIFs, and RESPs;
3. Exposes you to payment of departure tax in Canada (most people aren't subject to it but it isn't fun if you are);
4. Makes your CPP a mess with the totalization agreement (and note that Social Security tax in the US is much higher than CPP contributions in Canada, so it gives you a false impression merely to compare income tax rates);
5. If you are in TN-1 status and move your tax home to the US you are violating the "bona fide non-immigrant intent" provision for TN-1 status;
6. Requires you to file a dual-status return in the US in the first year (unless you move your tax home on January 1st), which means three tax returns, a T1, 1040NR and 1040 - and you have to do it again when you leave, plus a 1040-C in many cases;
7. Exceptionally complex to do it if you own a CCPC as your corporation will be exposed to full corporate tax rates and you will almost certainly be hit with departure tax;
8. Very easy to forget to fill in some important piece of paperwork and get hit with some sort of tax penalty;
9. Very easy to forget to fill in some important piece of paperwork and be prosecuted for a criminal offence, the FBAR form (which is not an IRS form) is a good example (requires you to declare foreign bank accounts outside the US worth more than $10,000);
10. Requires you to cut residential ties to Canada (including giving up healthcare);
11. Easy victim for crappy accountants.

The only real advantage is that you pay less tax. Personally looking at how much healthcare costs in the US plus the various disadvantages I don't think it's worth it, especially if your tax home is Alberta or BC as the tax rates are relatively low in those two Provinces.
_________________
Steve.

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voyager6868
CanuckAbroad Regular



Joined: 13 Apr 2008
Posts: 57
Location: Waterloo

Posted: Fri Aug 08, 2008 11:30 pm

 

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To maintain your health coverage in Ontario, you have to be physically present in Ontario 153 days in any 12-month period.

Pretty sure if you've been working in the US for 12 months, and it's not near the Ontario border, that the government will have some very serious doubts that you've been physically present in the province for 153 days in that period.

I can't speak for other provinces, but if your tax home is in Ontario, and you're on a TN, health care is not a good reason to stop you from moving your tax home to the US.

I'm also not convinced that moving your tax home indicates immigrant intent. I think most customs officers would be easily convinced that saving thousands of dollars was the motivation for moving my tax home, and not because I intend to immigrate to the US. Sure, if you got really unlucky, you could run into problems. so if you're saving a few hundred dollars, maybe not worth it.

The complexity of the accounting required is probably the strongest reason for individuals.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1676
Location: Calgary

Posted: Sun Aug 10, 2008 9:05 pm

 

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If you move your tax home under the tax treaty you have declared an intent to reside in the US. Ergo, you have violated "bona fide non-immigrant intent". The law is pretty clear on that one, if you meet the substantial presence test (there more than 183 days) and do not timely file a "closer connection" to Canada claim on Form 8833, under the tax treaty your principal residence will be determined to be the US.

The healthcare issue is more complicated but if you ended up in court over it I find it hard to believe a judge would agree you don't qualify for coverage if you've declared that your tax home is the Province in which you are claiming coverage and you've paid taxes there. But you'd have to check the caselaw to be sure. Obviously provincial healthcare schemes vary and in any event travelling those kinds of distances may be prohibitive anyway.

Anyway those were 11 things I could think of, many of which I've seen mentioned on here. Another one is the application of capital gains tax which has been mentioned on here several times.

I.e. you own real estate in the US and Canada.

If your tax home is in Canada, you are exempt from CGT on your principal residence. Under the current tax rules, you are subject to a 0% rate in the US up to $32,000 of capital gain. So in other words, you are unlikely to get hit with CGT if you sell either property unless you have a big gain in the US.

If your tax home is in the US, your property in Canada is subject to Canadian CGT from a value of zero at 50% of the marginal rate of tax on the gain, which means you will always pay some CGT if you sell the property in Canada if it increased in value. In the US you are exempt from CGT on the first $250,000 of gain on your principal residence.

So if you have property in both countries, the scenario where you are most likely to be taxed is if your tax home is the US.

Of course it all depends on your situation, but the main one I mentioned above in #1.
_________________
Steve.

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dannykool
CanuckAbroad Regular


You can't win if you don't play

Joined: 16 Oct 2007
Posts: 71
Location: Europe

Posted: Thu Aug 14, 2008 10:13 am

 

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I agree with the above points.

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lfen
Junior Member



Joined: 19 Nov 2007
Posts: 19
Location: California

Posted: Thu Aug 14, 2008 1:20 pm

 

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Google FTB Announces the 2007 State Income Tax Brackets and you'll find California tax brackets.

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