Taxes & the TN -further help

SarniaGrl
CanuckAbroad Regular



Joined: 18 Mar 2008
Posts: 39
Location: Tennessee

Posted: Wed Apr 02, 2008 3:53 pm

 

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Hello, I have been reading through all the tax topics but have a different issue I could really use some help with.

I have worked in the U.S. since 2004 on TN visas (short-term contracts), and the first two years relied on CPA's in the U.S. to file my income tax returns. In the 2004 a 1040EZ was filed(NC), in 2005 a 1040 was filed(KY). For 2006 I filed an extension (I know, late now) and now find myself filing for 2006 & 2007 (KY & TN), after getting many conflicting opinions from both sources in Ontario and the U.S.

I am so glad to have found this site, I only wish I could've found it much sooner. It has given me the answers to filing with a 1040NR and 8840, thank you! I had been hesitant to file further until I got the previous two years clarified and would appreciate any advice so I can get this situation corrected.

The latest opinion from a U.S. source (a CPA in TN) says to file a 1040X (Amended U.S. Individual Tax Return) for 2004 & 2005 and re-file as a 1040NR for both those years. In addition to the 1040NR, it has been suggested to file a 8316 (Information Regarding Request for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on a F,J, or M Type Visa)along with form 843 (Claim for refund and Request for Abatement) As the 8316 doesn't specify a TN, will it be rejected? Anyone else have this experience?

Should those taxation years be left filed as-is, with the '06 and '07 filed as 1040NR with 8840's?

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1122
Location: Calgary

Posted: Wed Apr 02, 2008 9:56 pm

 

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The problem is that you can't file an 8840 retroactively so you can't claim the tax treaty exemption for the previous years.

If you file a 1040NR and an 8840 then you must file a T1 in Canada as you are claiming the tax treaty exemption. This probably means you will pay more tax.

If you've been filing regular 1040s for several years and you stopped filing T1s, then you might as well carry on filing 1040s. What you must do is make sure you have no residential ties in Canada though, otherwise CRA can deem you resident which can mean you will have to pay taxes twice.

If you just up and moved and never told the CRA you may also find you are going to be hit with a late filing penalty for the previous years. This is not a terribly big deal if your all your income was declared on your T4s and you had no other income to declare in the tax year that you left - you may find you're owed a tax refund, in which case the penalty counts against that. Otherwise if you had a W-2 that year and never declared it to CRA you also get hit with a late payment penalty, and also you can get hit with the exit tax and penalties on that too if you're really unlucky.

Depends on the circumstances of how you left, how quickly you cut residential ties, if you were in Canada more than 90 days in the year that you left, etc.

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

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1122
Location: Calgary

Posted: Wed Apr 02, 2008 9:59 pm

 

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Also note there are special provisions about tax treaties, read the instructions for 1040NR carefully. I realise they are the world's biggest snooze-a-thon, but you need to be familiar with how the tax treaty actually works.

I'm not sure how the Canadian one works but many tax treaties have a time limit, i.e. you can only claim the exemption for x number of years (usually five) after which the IRS can deem you a resident for tax purposes even if you are in a non-immigrant category, so you have to file a 1040 anyway and you are essentially forced to cut all ties to Canada, otherwise you'd have to pay your taxes twice.
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Steve.

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