Tax Question USA/Quebec

[Mrs. O]

Hi,
My husband two kids and I moved back to Quebec Dec/01/2008. My husband started working Dec/10/2008. We lived 14 years in Massachusetts. We had our taxes done at HR BLOCK. The tax guy that did our taxes said just declare what you made in Canada to Canada and what you made in the USA declare that amount to them. Today, I got a paper from the Quebec Revenu and they want to know how much we made between January/01/2008 to Dec/01/2008 before we moved here. Will they ask us to pay taxes on the revenu we made in the USA? What should we do? Why would they want to know that. Could someone give us good advise here. I'm worried sick!

Thank you!

[Steven]

Your tax home was the US until December 1st from the sounds of it.

That guy from H&R block sounds very wrong indeed.

On your T1 you need to put down on page 1 that you moved to Canada on December 1st and then pro-rate (i.e. your deductions and so forth) to the 31 days you were in Canada.

On the US end of it there is a variety of paperwork to move your tax home out of the US especially since you were there so long. What you have to do depends on whether you are US citizens or not.

Have a read of IRS publication 519, but essentially you're probably filing dual status (if you're not US citizens), there is an example that explains how to do it. You will need to file other paperwork as well probably, such as a 1040-C and an 8854.

It's all covered in that publication, however you have now missed the filing deadline for the US. If you did file a 1040 you need to explain the situation to the IRS.

If you've still got a US bank account you need to file a W-8BEN with them to declare your non-resident status. Also if you have an IRA in the US there is some process for declaring them to the CRA under the provisions of the 2008 tax treaty. You don't have to cash them in, under the new treaty they're treated as an RRSP in Canada. The CRA basically says to call them because I don't think they've come up with a form for it yet.

[Mrs. O]

Hi Steven,

I kind of figured that HR Block guy did this whole tax thing wrong. I have dual citizenship. My husband is a Canadian only. The thing is after being here only 5 months we are thinking of moving back to the USA when my husband finds another job. We already filed our 1040 on April 1st. We still have USA bank accounts. How do we explain all of this to the IRS?

Thank you!

[Steven]

Hmm, this is a complex one, two basic methods, if you want to file as residents of Canada, you need to file a 2555-EZ to report your income (if any) to the IRS from the date you moved your tax home (if in fact you want to move it), this income is excluded from your US taxable income. You can't file jointly in the US for 2008 because your husband is a non-resident alien and you are a US citizen. Your husband would need to file dual status.

However, if you're only going to be in Canada for five months, it might be better to try filing as non-resident for the whole period if the CRA and RQ will let you, although it's hard to do when you're Canadian citizens living and working in Canada, although this may be an exception given your long stay in the US and the fact you're a US citizen.

What this would mean essentially is that you would carry on filing a joint 1040 as per usual and claim a foreign tax credit on Form 1116 for the Canadian tax.

I'm not terribly clear on what the filing requirements are on the Canadian end for non-residents of Canada anymore because they keep messing about with them, but you would need to file a pro-rated T1 of some description for the last month of 2008 as well. I think it used to be a non-resident T1 but I think now it's just a regular T1, check with the CRA. On his TD-1 he needs to declare to his employer that he is non-resident as well.

I get the impression that your husband is a US LPR, if so then he MUST file as a US resident, if he moves his tax home to Canada it can have serious consequences for his LPR status, i.e. he will lose it.

As non-residents for tax purposes, you cannot establish any significant residential ties either, otherwise the CRA will consider you resident. So no healthcare, keep your US DLs, etc.