Tax resident in the US, what does that mean for Canadian tax

hello,

i have been in the US since 2004, on an F-1 student visa until this year, now on a J-1 scholar visa. i have filed US taxes as a nonresident in the past. this year i am now a resident for US tax purposes. while this seems to simplify my US filing (just file like everyone else), i am confused about how it affects my Canadian filing.

my questions:
-can i be a permanent resident in canada but not a resident for tax purposes? this distinction seems to be made in US, is it in canada? I am considering determining if i am not longer a tax resident in canada, based on this change. however, i believe i need to maintain permanent residency in canada b/c i am on a non-immigrant visa.

-what are the pros/cons to giving up residency in canada? i have read some of the discussions on the board related to this. of note, i have no investments or property in canada so wouldn't pay "exit taxes," i am engaged to an american and will likely stay here either permanently or the forseeable future (applying for a green card after we get hitched), though we may move back to canada at some point.

-if i am still a tax resident in canada, how does my tax residency in the US affect my filing - do i claim tax credits etc. the same way i did when i was a tax non-resident in the US?

-the bigger question that is obviously behind all my other questions: can anyone recommend a good resources for advice on these questions? i hired a us-canadian tax accountant last year and he charged me $855 for preparing all my returns, which is WAY more than i can afford this year. i would like to get the big questions answered then do it myself. i've exhausted the resources at my institution/employer.

many thanks for any pearls of wisdom!

colleen

If you're a permanent resident of Canada, then you carry on filing a resident T1. You're not precluded from filing as a non-resident in the US simply because you hit the five year limit for filing Form 8843, the difference is that you file an 8833 instead and you are now subject to FICA withholding. But no, you cannot be a permanent resident of Canada and non-resident for tax purposes. A claim of permanent residence is exactly that.

If you're planning on getting married, then as soon as you get LPR status your tax home automatically moves to the US because you have made a claim of permanent residence in the US, so bear that in mind.

The general guide for the T1 explains how to claim a foreign tax credit, it's not particularly difficult.

On the US end you need to file a 1040NR. If you're J-1 and have continuously been a student and have been in the US for five or less tax years (i.e. even if you entered on 31st December of the first year, that's a tax year) then you should file Form 8843 with your 1040NR. If your employer withheld FICA taxes, you can claim these back on Form 843 and in addition you should give your employer a W-4 with "non-resident alien student" as the answer to question 6.

If you've been in the US for more than five tax years as a student, you can still file as a non-resident by claiming tax treaty status on Form 8833, but you are no longer exempt from FICA withholding. You need to file a W-4 with your employer with "non-resident alien" as the answer to question 6.

This is all explained in IRS publication 519. Although it mentions Form 8833 it's a bit of a pig to fill in, because the treaty changes every few years, so it's generally a good idea to call the IRS non-resident dept. in PA if you need to file this form. (Even the IRS told me to do this because divining the answer from publication 901 is not easy.)

steve,

thanks for the thorough and quick reply.

i talked to someone at CRA today and they said that permanent residency and tax residency are separate issues and i can be a tax non-resident in canada but still a permanent resident for immigration purposes. she advised me that since i am a tax resident in the US i am no longer a tax resident in canada and am only responsible for filing canadian-source income in canada, which i have none. she said to send a letter to CRA stating when the IRS deemed me a tax resident and that i don't need to file in canada for 2008 if i was a tax resident in the US for that entire year and had no canadian-source income.

regarding whether or not i need to file, in canada, you mentioned i need to file a T1 as along as i'm a permanent resident. CRA told me i only need to if i have canadian income since as a tax nonresident canada will not tax me one worldwide income.

why wouldn't i be a US tax resident? and why wouldn't i want to be? i'm trying to think of all the relevant issues. it seems to me that it benefits me to move my tax residency to the US as i will not have to pay additional income tax in canada on my US income. what am i missing?

as for whether or not i am a US tax resident, i have been advised by my university's tax accountant that as a J-1 scholar (not student) i am not exempt. i used CINTAX (software for nonresidents) to assess my tax residency and it told me i am a US tax resident (same software last year, when i was an F-1 said i was not a resident).

2008 will be my 6th tax year - so regarding i'm past the 5 year mark. i'm also not a j-1 student but a j-1 scholar, and am told the tax exemptions differ? you mentioned if i was over 5 years as a student i could still file as a nonresident under the tax treaty. why would this be better for me than filing as a resident?

perhaps i was too quick to trust the answer i got from the CRA, which is one i like! i'd rather not be responsible for my US income on canadian taxes, and if US tax residency gets me there, isn't that a good thing?

thank you again for your help. forgive me for following up with more questions. just trying to make sure i get it right!

colleen

i talked to someone at CRA today and they said that permanent residency and tax residency are separate issues and i can be a tax non-resident in canada but still a permanent resident for immigration purposes. she advised me that since i am a tax resident in the US i am no longer a tax resident in canada and am only responsible for filing canadian-source income in canada, which i have none. she said to send a letter to CRA stating when the IRS deemed me a tax resident and that i don't need to file in canada for 2008 if i was a tax resident in the US for that entire year and had no canadian-source income.

It's more complex than that, it depends on what residential ties you have to Canada. You can be a Canadian citizen and have ties to Canada and have greater ties to the US, there is a formula in Article IV of the tax treaty, however you have to file NR-73 with the CRA to get a ruling. Generally speaking though if you are a "permanent resident" of Canada, i.e. have residential ties to Canada, you're resident in Canada for tax purposes. It depends on your circumstances which I can't comment on.

regarding whether or not i need to file, in canada, you mentioned i need to file a T1 as along as i'm a permanent resident. CRA told me i only need to if i have canadian income since as a tax nonresident canada will not tax me one worldwide income.

Well I don't entirely agree with the simplistic information they appear to have given you, what they're talking about is filing a non-resident T1 on Canadian-source income which you don't have.

why wouldn't i be a US tax resident? and why wouldn't i want to be? i'm trying to think of all the relevant issues. it seems to me that it benefits me to move my tax residency to the US as i will not have to pay additional income tax in canada on my US income. what am i missing?

As a student it's not a good idea because if someone sends you money from Canada (e.g. your parents) then it's subject to US income taxes. Also as a student you're exempt from FICA withholding which is obviously a major advantage.

as for whether or not i am a US tax resident, i have been advised by my university's tax accountant that as a J-1 scholar (not student) i am not exempt.

Sorry, I thought you said J-1 student.

you mentioned if i was over 5 years as a student i could still file as a nonresident under the tax treaty. why would this be better for me than filing as a resident?

It might not be, but you said you were a permanent resident of Canada. If you have significant residential ties to Canada you are a tax resident there. I'm familiar with caselaw where a guy who went to Dubai only kept his Ontario DL and had his furniture in storage and the court ruled he was a tax resident of Canada when he came back and got into an argument with the Revenue about it, so I'd be careful what they're saying to you on that point. It's a very complex area of tax law and honestly I don't completely understand it either, I'm not sure anyone does having spoken to the IRS at length about it.

Generally speaking if you have something only a resident can get, such as a DL or a healthcare card (or a TFSA), you're resident in Canada for tax purposes.

perhaps i was too quick to trust the answer i got from the CRA, which is one i like! i'd rather not be responsible for my US income on canadian taxes, and if US tax residency gets me there, isn't that a good thing?

Well what I would say is that you've got to be resident in one country and non-resident in the other. Sounds obvious but you either file a 1040NR in the US and a T1 in Canada or a 1040 in the US and a T1 non-resident in Canada (assuming you need to which it doesn't sound as though you do).