Switching from a Canadian to a US Bank

I'm not 100% clear on your situation, but basically if you are directly employed by a US employer and file as a non-resident it works like this:

When you start work you give them a W-4 (equivalent to a TD-1), on line 6 you ask for non-resident tax to be withheld;

Your employer will withhold payroll taxes and at the start of the year will send you a W-2 (equivalent to a T4) detailing what they withheld.

You use the W-2 to fill in Form 1040NR and you also declare any other income on it that is connected with a US trade or business (say you sublet your apartment). You also have to fill in Form 8840 which is essentially a tax treaty claim and you send this all in at tax time. (You also need to fill in a Form W-8BEN to make a tax treaty claim and send it in to your US bank so they don't do non-resident withholding on your bank interest).

You file a T1 in Canada as you did previously (using the W-2 in place of a T4), however you have to file a foreign tax credit claim for the tax you've paid in the US (I don't think you can claim back medicare deductions). If you pay State income tax you can usually claim a provincial foreign tax credit as well for that.

Once you've worked out how much the foreign tax credit is, exchange rates etc. you may or may not owe some money to the CRA on top of what you've already paid in the US, depends on whether the income tax bracket you're in is higher in Canada.

Most of the time you do owe additional taxes in Canada as marginal rates are usually higher, however if you're in a State with high taxes like California and you're from BC or Alberta and in a low bracket you might find that actually you pay more in the US. However you don't get a refund for it, but you can claim a credit for the tax you paid in the US.

Most of the time though you effectively end up paying whatever the Canadian rate is when you total it up, because the Canadian rates are usually higher.

Contributions to social security count as contributions to CPP under the totalization agreement so you don't lose out there.

The general guide for the T1 explains how to claim a foreign tax credit.

Steven,
Much appreciated!

We keep two accounts, one in Canada and one in the US, to transfer money we either write a cheque from our Canadian account to our US account and deposit it here (which we don't do any more since all our money comes in US funds), or mail a cheque back to our home branch in Canada (to make payments on our car etc.) It is a bit of a pain but is cheaper than a wire transfer, which the last time I checked it was $35 USD at our bank (we FedEx them using the company account, so it is free), I think Reba's point about the amount you are transferring is $40 is not much if you are transferring $10,000 (0.4%), but if you are transferring $100 it is more significant (40%), even though the actual dollar amount is the same.

The problem that we have faced is the banks here (rural Nevada anyway) get cautious when a cheque comes from a "foreign" bank, and may try to put a hold on it. My pay cheques come from our parent company in Vancouver, and they wanted to put a 14 day hold on them when I deposited them, even though the foreign bank was Canadian (and a major bank at that), you would have thought they were coming from the "Third National Bank of the Congo" the way they looked at them.

I guess to make a long story short, I would keep the Canadian account for the reasons that Reba said, and to transfer money just write yourself a cheque.