Tax avoidance: Canadian or US charity?

[Steven]

What "ties' do you have? A medical card is not a tie. A rental unit is not a tie. A parent is not a tie.

If he maintains access to health coverage in Canada, that's a residential tie because only residents can get it and the rental unit could be considered his principal residence if he claims it as such.

Anyway, basically to answer the question you have the choice of being resident or non-resident for tax purposes (although the CRA and the IRS can argue with that choice based on your ties to either country). Whether that's a good idea or not depends on your circumstances but the most usual situation where it is a good idea to be non-resident is if you plan on going back in the near future. If you plan on spending a complete calendar year or more in the US then generally it's simpler to file as a US resident. The only major exceptions are if there is some major Canadian tax downside if you move your tax home to the US, e.g. if you would end up paying a lot of departure tax or if you own a CCPC with significant assets (which is basically the same problem, departure tax).

So if you pay taxes in the US as a resident, obviously your charitable donations should be in the US.

[agnelson]

"So if you pay taxes in the US as a resident, obviously your charitable donations should be in the US."

Not quite. If you have to file returns in voth US and canada and arer reporting Cdn income on your US return, it is actaully better to have Cdn caritable donations, as this will lower BOTH taxes.

[fnorman]

Agnelson's advice might be correct about the charities but the advice about tax residency is wrong. Being a US resident does not necessarily mean you cease being a Canadian resident for tax purposes. To avoid having to file Canadian taxes, you must give up clubs, bank accounts, memberships, driving licences, provincial health care plans, family allowance payments, your car, and furniture. You can keep a house In Canada as an investment and rent it out, but it must be rented on lease terms of a year or more and you must have a resident Canadian agent sign an NR6CRA for tax purposes. The medical card alone is a big one. Note that if you are out of Canada for approx 6 months in a year, the (provincial) medical card is no longer valid.

A few years?! Non-residency starts as soon as you leave and establish a home in US!

What "ties' do you have? A medical card is not a tie. A rental unit is not a tie. A parent is not a tie.

Just to clear up your misconception, Canada does recognize US charitable gifts and vise versa, as long as you also report income from that country. So, yes, a Cdn resident reproting US income on his return, gets to claim US charity on both his US and Cdn return.

But, truly, you should be ditching Cdn tax residency. You are a US resident.

[agnelson]

Hey, welcome to the site....

No, treaty country (like US) residency rules will result in Cdn non-residency as soon as you no longer have house and spouse in canada and one is living legally in that country.

CRA will either determine you are non-resident (no ties) or deemed non-resident (many ties but stronger in the other country) on the basis of 'regular abode' and/or 'centre of vital interests', and none of the minor ties you mentionned would affect this. tax treatment for botth NR and DNR are now identical. So, even having a place that you keep for yourself in canada is no problem, as long as you outweigh these ties in US.

The ties you mention are for non-treaty countries. And, as you say, many ties you think you may be holding onto (like DL and OHIP) may have expired without any action.

The 'many multiple ties' issuse used to be a problem, even for treaty countries, but with the last IT-221 in 2002, and the clearer legislation on the deemed non-resident status, all treaty issues come down to home/spouse/job. Nothing else matters.

[hohead]

Ok guys, thanks a lot for your input.

I've done some more reading, and I agree that the best plan of action is to claim non-residency with Canada, and only pay US taxes.

However, there is one problem holding me back: I have already made my RRSP contribution for this year, which complicates things.

If I want to avoid filing Canadian taxes this year, how should I deal with this RRSP contribution?
- Should I just pretend that it is a normal non-registered investment?
- Can I simply wait until I move back to Canada, and then claim it as a contribution?

Thank you for all your help!

[agnelson]

I guess you need to do a little more reading, otherwise you'd realize that you DO have to file a partial Cdn return this year, since this is your departure year. The Emigrants guide from CRA explains this.

YOur RRSP deduction can be used on this return )or saved until a future Cdn return. But it should be reported at least. No problem with that. You need to get your rental income straightened out and forget about TFSA.

[hohead]

Ok, thank you!

[Steven]

Yeah, you have to pro-rate it to the number of days you were in Canada, read the general guide for the T1, I think it's covered in there.