Is income tax higher in the US or Canada? - it DEPENDS -

My_question_is: Applicable to both US and Canada
Subject:        Income taxes... IRS or CRA?
Expert:         taxman@centa.com
Date:           Friday March 23, 2007
Time:           06:12 PM -0500

QUESTION:

I'm a Canadian citizen living and working in Niagara Falls, ON. I married a US citizen in November and have applied for a K3 visa. If and when I move to Buffalo, NY to live with my wife (who won't relocate here), I'll still be working in Canada as I have a good job. Do I pay taxes as usual to CRA and do the AMT in the US or can I just pay the IRS..?? I can't receive health care, unemployment or pension from the Ontario government anymore if I live in New York, so I'd rather pay US taxes as they are lower.

Any help you can provide would be appreciated.
 
_____________________________________________________
david ingram replies:

You will continue to pay Canada taxes just as if you lived in Canada.

Then you will report the income on your US return and file form 1116 to claim the credit for the Income tax, CPP and EI that you paid to CANADA.

The AMT does not apply anymore in your situation.

However, you are incorrect about New York having lower taxes.

If you were comparing Toronto and New York City, New York City is much higher.

Calculated as Married filing separately.

However I used $50,000 US as a Niagara falls New York salary and that works out to $2516.00 State tax, $6,951.00 Fed Tax, $3,100 FICA and $725.00 Medicare for a total of $13,292 US or $15,074.37 Cdn at 1.1340936

At the same exchange rate, $50,000 US is $56,704.68 which earns Ontario Tax of $4,044.59, Fed Tax of $8,231.00, CPP of $1,910.70 and EI of $729.70 for a total of $14,915.99 Canadian.

With the exception of mortgage interest as a deduction, the other deductions in the US are NOT AS GOOD as Canadian deductions and since I can (with a little time and reorganization) make a Canadian mortgage deductible as well (Nov 2001 Newsletter in top left hand box at www.centa.com), I do not take that into consideration.
________
The following answer goes even further

David,
 
I am a U.S. citizen and resident, married to a (non-working) dual U.S.-Canadian citizen. I recently learned that the company where I've worked for the last 20+ years is closing its doors near the end of this year. I'm 55 and can't get my pension for at least 5 years...10 years if I want a full pension. We've been thinking of the idea of moving across the border to Canada (wife would sponser me), and I have a question. Would it make any sense tax-wise for me to live and work in Canada, pay into CPP for 5 or 10 years? I understand that Canadian taxes are higher than in Michigan, and I have mutual funds and other savings that are generating about $10,000 in yearly interest/dividends/capital gains that I would be leaving in the U.S.
 
Thanks,
 
________________________________________________________________
david ingram replies:

As an esoteric exercise, I decided to see what the difference actually was because Canadian taxes are NOT always higher than the US, particularly where two spouses have equal earnings. 

The big difference is that the US has a joint tax return rate and when one spouse works an the other does not, a discrepancy does arise.

I used a US salary of $60,000 and a joint 1040 and MI 1040.

I did not use any deductions other than the standard deduction and did not claim for any children.

The results were

US fed tax of    5.714
MI tax of          2,083
FICA                3,720
Medicare             870           
For a total of   12,387      which converts to $14,048.02 in Canadian funds
If you had lived in Detroit, the city tax would be $1,470 changing the figures to
a total of  $13,857.00 US or $15,715.14 Canadian

I converted the $60,000 to $68,045.62 Canadian

The results were
Cdn Fed tax of   9,581.69
ON tax of          4,659.14
CPP of              1,910.70
EI of                    729.30
for a total of     16,880.83 which converts to $14,884.86 in US funds

The difference is $2,497.86 or about $200 a month. if you did not move from a Michigan city with a tax return or a difference of (14,884.86 - 13,857) $1,027.86 if you moved from Detroit

Then - (I was intrigued) I tried it with you both receiving $30,000 US


The results were

US fed tax of    5.714
MI tax of          2,083
FICA                3,720
Medicare             870           
For a total of   12,387      which converts to $14,048.02 in Canadian funds
and $1,470 Detroit tax 'IF'  There is no change

Then I decided to show what would happen to a couple who moved to Canada and both worked equally.

I converted the $60,000 to $68,045.62 Canadian but split it into 2 returns of $34,022.81

The results were
Cdn Fed tax of   3,474.97 x's 2 or   6,949.94
ON tax of          1,721.67  x's 2 or  3,443.34
CPP of              1,510.88 x's 2  or  3,021.76
EI of                    636.23 x's 2 or   1,272 .45
for a total of     14,687.49 which converts to $12,950.86 in US funds


and is only a difference of  12,950.86 - 12,387 or  $563.86  or less than $50.00 a month AND  qualifies your wife for her own CPP.

Of course, if you moved from Detroit to Windsor, you would be paying ($13,857 - 12,950.86)  $906.14 LESS living in Canada.

For the record, I would normally charge a minimum of $400 Cdn for this 'what if' calculation and your question was rejected originally along with another 100 or so.  However, it caught my eye and I decided to use it as a major answer. 

The investment part of your income will also cause some differences because Canada will tax the dividends and capital gains differently,likely a little more.  However, if you switched your accounts to Canadian securities, the tax may be a little less because of Canada's dividend tax credit.

david ingram wrote:
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4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
 
Be ALERT,  the world needs more "lerts"
 
David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
 
Just a guideline not etched in stone. 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

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