trying to decide on U.S. or canadian tax status

[TNCanuk]

Hi Steve not sure if this is where I go to ask a question but here goes.... moved to the U.S. on TN status... plan to stay about 3 years. Would like to keep my tax status as Canadian - taxes in the U.S. will be more than in Canada so not worried about getting double taxed. What are the U.S. tax implications? what U.S. tax form would I file?

I am assuming that I would be taxed in the U.S. as a resident is though - basically payroll deductions. is this assumption correct or would I face some additional witholding ?

[agnelson]

You are a US tax resident. Since you are living and working in a treaty country, the only way you could maintain Cdn tax status is by keeping a house and spouse in canada, and visiting them regularly. Any other scheme would make you non-resident. You will file a departure return for canada in the spring, based on the direction in the CRA's Emigrant Guide.

There is no advantage to keeping Cdn residency (you'd need to convince me that you have some situation that would absolutely require this), but in any event, you would be non-resident. Tell me what your concern is.

You will file a 1040 in US at least covering the time since you began working. US withholding tax, as in canada, merely determines the size of your paycheck. You still have to file at year end.

You have some choices as to how you file in US in the first year, you can find a lot of great info at forums.serbinski.com.

But after first year, you file a normal 1040 like all your co-workers -- and nothing in canada unless you work or have real estate income.

[TNCanuk]

The objective of maintaining canadian residency is precisely as you mentioned to maintain a principle residence in Canada and thus be able to qualify for the principle residence exemption once that property is sold.

House prices have skyrocketed this year.

There is no tax benefit I can think of to giving up canadian tax residency since U.S. fed and state taxes will be greater than Canadian taxes.

Am I missing something?

I know this is unorthodox as often times canadian taxes are greater and thus taxpayers are concerned with double taxation. But as that is not a concern of mine.

-- Fri Nov 20, 2009 2:34 pm --

p.s.

BTW...thanks for replying..forgot to mention that earlier...Basically here is the situation as i see it

Benefits to keeping canadian tax status
Principle residence exemption
RRSP
Tax free savings account

Negatives
Having to file in two places (only income is salary income so no source income issues)

All the above benefits are lost if I attain U.S. tax status.

[agnelson]

You can sell your home one full year after leaving canada and still be tax-free. If you have owned the home for a long time, even selling after the first year will be very little tax. Say you return to canada in 3 years, only a small portion of the gain would be taxable. Buya house in US and it'll grow tax-free too.

There are only a few pairings of states vs. province that yield lower tax in canada than US, so I wouldn't make that general statement. Likely it's by treating yourself as a non-resident of US that you would end up paying more US tax than you should, not because the Cdn rate is actually lower. And by days spent in US, you will have to file as a resident there anyways, (the closer connection waiver would not be accepted) and your TFSA income would be reportable.

In US there already is a TFSA: it's a Roth. And Roth401(k) is better than RRSP.

In any event, you have moved, so CRA should deem you non-resident.