Tax Filing Query

[md164]

Hi,

I am a Canadian citizen living in the US since late last year(on H4 visa, my husband is working here on H1B visa)
I have some queries for tax filing. I had worked for 3 mths in 2007 in Canada while I was still residing there. Then after I did not work and joined my husband in Aug last year. I still hold bank accounts in Canada, dont own any property. My question is where should I file my taxes? Can I file it joint with my husband? (I dont know whether something like this is even possible) or will each one of us have to file our tax returns individually, my husband in the US and me in Canada?

Any explanations are appreciated.
Thanks in advance.
MD

[Steven]

If you were physically present in Canada for more than 90 days in 2007, that is a residential tie (and so is having a driver's licence) and you legally must file in Canada. You can claim dual status (i.e. only pay for the days that you were in Canada) but if you do that it's a world of complication and I would only do it if you plan on permanently residing in the US and you save significant amounts of money doing it that way (for the year 2007).

It's really complicated to file dual status because you have to calculate your personal exemptions etc. based on the number of days you were in Canada, then on your 1040 you have to do the same for the US and it's a monster headache.

What I would do is on your T1 you simply put you left on the 31st December and just file as normal (if you plan on remaining in the US permanently). You declare any US income for 2007 on your T1. You file Form 1040NR in the US and file also Form 8840 to claim the tax treaty exemption. Next year you file a 1040 like everyone else does, if you plan on residing in the US permanently.

If you really want to do dual status then you have to do three tax returns, a T1 for the period you were in Canada with the date that you left, a 1040NR for that period in the US and a 1040 for the period after you moved to the US.

Read the instructions in depth for both the 1040NR and 1040 for dual status filing. Also the instructions for the T1 for the same reason and how to declare US income and working out the exchange rate.

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

Note also that if you entered the US as a permanent resident you HAVE to file dual status for 2007.

If you plan on remaining in a non-immigrant category and you plan on coming back to Canada at some point, you just file as it describes in that CRA publication above, i.e. T1 as normal (well, not completely normal, you have to declare US income) and in the US you file a 1040NR and an 8840.

I can't see why you can't file together with your husband, but you must both claim the tax treaty exemption in the US and both file jointly on a T1 in Canada. You can't have a situation where one of you has a tax home in Canada and the other in the US.

Be careful also with your bank, you have to tell them what your status is. I.e. if your tax home is Canada or the US. If it's the US, by law they have to withhold Part XIII tax, i.e. 10% of your bank interest. If you fail to notify them, the CRA can take that as a "residential tie". Or worse yet, you end up in the reverse situation, they withhold the tax because you've given them a US address, but actually your tax home is still Canada, so then you have to claim the Part XIII tax back on Form NR7-R.

[md164]

Hi,

Thanks for your reply.
So is it ok to do this -
I file my taxes in Canada for the full year 2007. I will have to declare my status as being married, but I will choose to file my return separately and only declare my husband's net income in the spousal info on my return (he does not have any income in Canada or any residential ties except that hes married to me.)
Now, when my husband files his taxes, which will be in the US, we file it jointly. I dont have any income in the US for 2007. Can he claim me as a dependent spouse, which technically is the case as I havent been working except for the 3 mths I did in Canada?
One more thing that we have come across is that since I am on an H4 visa (dependent visa), when I file jointly with my husband for 2007, I only have to declare my US sourced income (zero income in my case) as I am considered to be a non-resident alien(I have only been in the US since Aug 2007). Is this true?

Will greatly appreciate your response.

Thanks!

[Steven]

You can't file jointly in the US unless you're both claiming the tax treaty exemption and you both file in Canada as well. Has to be the same tax filing situation at both ends if you file jointly. Next year you could just file jointly in the US and not worry about the Canadian end but you were resident in Canada in 2007.

You would both have to file jointly in Canada, then file jointly on 1040NR and then both claim the tax treaty exemption for that to work.

Because you were resident in the US during 2007 you have to file a tax return, there's no way around that one. You can't simply say you were resident in Canada and ignore the US filing requirement and then he files in the US, because he's claiming that you were. The fact that you weren't there for 183 days isn't relevant in this case because you're filing jointly.

However I have to say this is a pretty complex filing situation, so I'd check with the CRA non-resident dept. and the IRS to be sure, the instructions for the 1040NR are pretty comprehensive.

Be careful with any advice you get from the IRS because they don't take into consideration the fact that Canada has very tough residency rules. They'll probably try and get you to pay tax in the US but you can't if you have residential ties to Canada.

One way you might be able to do what you're suggesting is to file dual status, i.e. claim the married person's allowance for the portion of time you were in the US, but that is going to be unbelievably complicated if you are filing a tax treaty claim for the first part of the year, and he was a US tax resident for the whole year. You'd need serious specialist advice in that scenario. Partial joint claims when tax treaties come into it is a pretty obscure situation.