Cross border taxes -


            I have a question, need the response by May 1.


            Client:  Canadian citizen working in the US on a Visa.  In 2006, had small amount of Canadian wages and had US wages.  The prior preparer filed a US Form 1040 and reported his worldwide income, claiming a FTC for Canadian wages (not sure if that was correct).  The prior preparer also said that the client met the substantial presence test to be a US resident, but was a Canadian resident under the CA-US Treaty.  Can an individual be a Canadian resident and a US resident for tax purposes, thus taxable in both countries on his worldwide income?

            Or, if a Canadian resident under the CA-US Treaty, is he a US nonresident alien and thus files Form 1040NR instead of Form 1040?


            If he is a US resident, does he lose his residency when his Visa expires and he returns to Canada as long as he doesn’t come back to the US to work?




david ingram replies:

There are two kinds of resident alien for tax purposes.

1.   The holder of a resident alien (green) card is "always" a resident alien for tax purposes even if the green card holder is in France or Germany or Japan or Canada.  US citizens and Green card holders NEVER file a 1040NR no matter where they live and no matter where the money is coming from.

2.    A person is also a resident alien for US tax purposes when they have been in the US for 31 days in the current year and adding 1/3rd of the days they were there the year before and 1/6th of the days they were in the US the year before that adds up to more than 183.

If someone was in the US for more than 183 days under this rule, they are taxable on their worldwide income for that year unless they can prove a closer connection to another country or countries by filling in form 8848.

In the case of a Treaty County like Canada, you have to look at Article 4(2) a, b, c and d to determine where they will pay report their world wide income and to whom and when they will actually pay tax.

So, if someone worked in the US all of 2005 and all of 2006 and up to the end of January in 2007 their days would be (1/6 of 365 for 2006) plus (1/3 of 365 for 2006) plus 31 in 2007 for a total of  60.8 + 121.66 + 31 for a total of 213.4966666 days and they would be taxable on their world wide income in 2007 under US tax law UNLESS they can prove closer connection to another county on form 8848.

If and I say if, they spent 60 days in Spain and 45 days in England and 45 days in Canada and 75 in the Bahamas and 40 days in Brazil and 69 days in Argentina, they could not establish a closer connection to another country and the US could assert their right to tax the person on their world wide income. They should file an ordinary 1040.

If they moved back to Canada on Feb 1 and stayed there for the rest of the year, they would have no problem showing their closer connection to Canada and would file a 1040 Dual Status return for the year they left the USA.

If they were in the USA 6 months in 2006 and 6 months in 2007, they should file a 1040NR for both years.

If they were in the US for  seven months but kept their family in Canada and spent every weekend back in Canada but were in the US for more than 183 days in 2007, they would be filing a 1040 but exempting all their Canadian income under Article IV(2)(a)  of the US
Canada treaty.  In Canada, they would file a tax return and report their US earnings and claim a foreign tax credit for the federal tax, state tax, FICA and Medicare taxes paid.

You might also file a 1040 reporting the Canadian Income on the exempt by treaty section on the upper half right side of page 5 but I prefer the 1040 route because that is the system a US citizen has to use.

It is not unusual to see three different perfectly legal and correct methods to file the US return.

Of course, you lose your immigration residency but not necessarily your tax residency when your visa expires. 

I likely get one call a week from a Canadian or Brit who is living and working illegally in the US, sometimes for 30 years.

I tell everyone in that position to stay away from the border.  At least once a month I get a call from someone in that position who came to Canada for a family reason and gets caught trying to re-enter the US and banned.  It's a little tough when mom can't go back to the US with three kids, a husband and a job in Chicago.



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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 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.
$1,600 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

$1,700 would be for two people with income from two countries

$3,000 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 $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
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 $900 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.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

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