Tax Misery - taxes when living in US

bakhlawa
New Member



Joined: 16 Jul 2008
Posts: 2

Posted: Wed Jul 16, 2008 4:31 am

 

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I am in a dilemma and hoping someone here can advise me.

I became a Candian landed immigrant in Dec 2001 but didn't move to Canada until Aug 2004 (at which time immigration stamped a document stating I was a "Returning Resident").

Between 2001 and 2004 I worked in the US and paid taxes there, however reported nil taxes in Canada (but filed as a resident). Beginning 2005 onwards I reported to CRA taxes on income earned in Canada.

My question is: Do I have to refile my tax returns between 2001 and 2004 reporting my US income and paying the difference to CRA (if any amount outstanding)? Or can I refile returns for these years stating I was a "nonresident" and hopefully not have to pay taxes on the US income? (I was in Canada less than 183 days each of these years but did have some "residential ties" in the form of a health card that I used on a few occassions, a joint bank account with my brother, etc. - nothing major but perhaps enough to be deemed a resident).

Any help or advice would be useful.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1362
Location: Calgary

Posted: Wed Jul 16, 2008 10:21 am

 

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What you can do is file amended returns for the years you were in the US reporting your US income and claim a foreign tax credit for the tax paid in the US. Whether they will allow the tax credit to be claimed this late in the day I don't know, you'd have to ask the CRA.

As long as you actually paid the amount owing in Canada (i.e. on all your other income minus your US-source income) it's basically just a paperwork error, assuming the tax credit would have covered fully the US amount. However the Canadian rate would usually be higher so you may owe a small amount of back tax, so you might get hit with penalties but they shouldn't be too bad.

You can't file as non-resident because you have permanent residency and other ties, you'd have to file for whichever Province you got your healthcare from.

Non-resident returns are rarely used, they're mainly for people in Govt. jobs stationed overseas or people in weird situations, e.g. people who work on oil rigs.
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Steve.

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bakhlawa
New Member



Joined: 16 Jul 2008
Posts: 2

Posted: Wed Jul 16, 2008 6:14 pm

 

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Thanks a lot Steve.

Is there an expiration date to claim the taxes paid in the US as credit towards Canadian taxes? I certainly hope not.

So if I understand you correctly, you're suggesting refiling the tax returns for 2001-2004 but stating the Us income earned and then paying the difference in taxes (due to higher Cdn tax rate) to CRA + interest + penalty. Do you happen to know what the interest % or penalty % is?

I certainly would like to clear this up the right way this time so your advice to set my records straight is most appreciated. Thanks again.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1362
Location: Calgary

Posted: Fri Jul 18, 2008 10:36 am

 

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Late filing penalties are fixed amounts but I don't know off-hand what they are, I'm sure the CRA will be more than happy to tell you. Then there is a penalty on the amount that you didn't pay as well. I'm sure the rates are on the CRA website, after how you figure out how much back tax you may owe.

There is also the question of how you filed in the US, normally what you should do is file a 1040NR and an 8840 or 8833 to claim the tax treaty exemption. If you filed a 1040 instead then it shouldn't be too big of a problem if all your income was US-source income. Make sure you've filed a 1040-C though otherwise you'll have the IRS after you as well. If you left mid-year you may owe the IRS tax because your personal exemptions will be reduced to the portion of the year you spent in the US. And yippee, if you were filing a 1040 and left mid-year you have to file a dual-status return which means a 1040NR for the portion of the year after you left. And a 1040X to report the change. The more I think about this one you're probably better off phoning the IRS. The main point is though that you cannot retroactively claim a tax treaty exemption, but if all your income in those years was from US sources that doesn't really matter.

The general guide for the T1 explains how to claim a foreign tax credit, however, how you do it retroactively I don't know, you'd have to ask the CRA. Presumably you file for the foreign tax credit with the amended T1.

The general advice I give out on here to anyone resident in Canada who is going to the US temporarily is not to move your tax home to the US unless you're absolutely certain you're going to save enough money on taxes to pay a really accountant to fill all the forms in when you arrive and leave. Unfortunately that doesn't help you at this point.
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Steve.

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