FW: I think you may be just the guy I need.

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Sent: Thursday, May 01, 2003 5:05 PM
To: [email protected]
Subject: I think you may be just the guy I need.
David,
I am a Canadian citizen, with American wife & 2 kids, 16 & 13)
living in San
 Francisco.  Aged 45, retired twice and getting ready to do it
again.
Although I am from Toronto originally, I love BC. Who doesn't?
Given the ridiculous appreciation in my home's value here, the
relative
strength of the US Dollar, and the fact that I will be receiving
modest
pensions and passive income from both Canadian and US sources I
have been
giving serious thought to buying a place in BC. Possibly on
Vancouver Island
or perhaps around Deep Cove, North Van or ?
Since I would prefer not to uproot my 13 year old daughter (my
son is in
college already) my thought is to buy something real estate wise
to lock-in
today's values, exchange rate etc. Preferably it should have
income,
(although if we drop down in value some appropriate land may be
in order.) I
have about $120,000 US liquid right now.
My questions revolve around my basic concept ... does this make
sense?
should I retain US or go with Canadian residency, what are the
tax
implications etc. I'd probably plan to spend most winters in the
US, I'd
also like to continue to Broker limited amounts of commercial
real estate in
the US with a goal of generating $50 -75K per year in income.
I'd like to discuss things very generally at first and if we feel
that we
can work together establish a consultancy relationship.
Hope this is clear.
P XXXXXXXXXXX
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david ingram replies:
I do not know where you found my name.
However your situation is a very common one in our office.
I also have a Canadian / American brother in San Diego and a
Canadian American Sister
with three children in Wheeling, West Virginia.
I expect my brother will end up back in Canada in BC.  I cannot
imagine that
my sister would ever think of leaving the US. She has adopted
Wheeling and
Wheeling has adopted her and her husband.
The question of where you want to live as a "resident" is an
interesting one which "YOU" are in control of.
If you do as you suggest and spend 5 months in Canada and 7
months in the US, you
will be considered a resident of the US for world wide tax and
only taxable in Canada
on any income arising in Canada
If you spend 184 days in Canada and 182 in the USA, you will
qualify for BC Medical and be taxable in
Canada on your world wide income and although you report all your
income to the US, you would only pay
tax to the US on your US income because of Foreign tax credits
for the tax paid to Canada.
This last statement is factually true.  However, even though you
do not pay tax twice, you usually pay a higher tax to the host
country because including the foreign income, raises the average
or marginal tax rate.
You can and should consider settling in some place like Semiamhoo
or Bellingham.  You would remain in the lower tax regime, could
visit Vancouver or BC easily and escape California tax.  The
weather would be about the same.
Hope this helps.   I am available for phone consultations at the
rate of $250.00 US per hour with a minimum hour call.
If you talk for 45 minutes and then phone back the next day with
a couple of minute phone call to clear something up, I do not
charge for the follow up call.
And on one more note, if you go to www.google.com and search for
(income tax expert) (NO BRACKET - NO QUOTES).  We usually come up
on top out of about 495,000 possibilities.  Go to our site and
click on [U.S./Cdn Taxation] to read some of the rules and sample
tax cases.  Article IV (2)(a) is really important for you..
I have reproduced the first four pages of that section here.  The
reproduced part ENDS with Article IV.  go to
http://www.centa.com/U.S.Cdntaxation.htm to read the rest and the
sample tax cases.
      Canadian Taxes, U.S. Taxes, Visas and Immigration,
      British Columbia Income Tax, Real Estate
      To Reside or Not
      (THE TAXING QUESTION)
      excerpt from
                 david ingram's  BORDER BOOK   Jan 20, 2001
               IT ISN'T ALWAYS YOUR DECISION GOVERNMENT(S) DECIDE
FOR YOU!
      "WATCH OUT!!!"
      AMERICAN CITIZENS LIVING IN CANADA (or any other country)
        Every U.S. citizen or "green card" holder living out of
the U.S. (i.e., in Canada) must continue to file U.S. income tax,
gift and estate tax returns. They may exempt up to $72,000 U.S.
of "earned" income, but if they have more than $72,000 of
earnings or any amount of interest, dividends, rents, royalties,
or pensions, they must file a U.S. income tax return and use a
form 1116 (foreign tax credit) to claim credit for the taxes paid
to Great Britain or Canada or Iceland, or Libya, or Borneo. (Note
that the $72,000 figure was $70,000 prior to 1998).
        CANADIANS OUT OF CANADA
        This is a very important matter.  In our US "working
visa" practice, we counsel our clients on their US and Canadian
tax liabilities when they are going to work in the USA.  We find
that most (certainly 95%) of the Canadians who get US working
visas are given incorrect or at least incomplete advice about
their US tax liabilities.  For instance, a North Vancouver
company sent over 200 employees to the US on TC and TN visas.
The individual employees were being paid from Canada and were all
filing Canadian returns and not paying tax to the USA where their
first liability was when they were performing the service in the
USA.
      US taxation is based upon where you perform the work.
Where you "claim" to work is not important.  Now, if you work in
California and live in Vancouver with your spouse and children
and earn LESS than $10,000 US, there will likely be no US FEDERAL
tax liability because of the US / Canada Income Tax Treaty.
However, there WILL be a California income tax liability.
      This chapter was new for the seventeenth (1990) edition of
my Canadian Income Tax Preparation book. It came up because of
the number of clients I have who are "out of the country." At any
moment, I have over 500 clients who are Canadians living in
Barbados, Fiji, Australia, New Zealand, New Guinea, Hong Kong,
Saudi Arabia, Kuwait, France, Brussels, and another 50 countries.
As well, they live in at least 20 of the U.S. states such as
California, Alaska, New York, West Virginia, Nevada, Hawaii,
Florida, North Carolina, Tennessee, Washington, Virginia, and
Arizona.   Note that some states have no (or limited) state
income tax. Alaska, Florida, Nevada, South Dakota, Texas,
Washington, and Wyoming have no state tax.  Tennessee has tax on
interest and dividends only.  New Hampshire taxes proprietorship
business income.  And, by the time you read this, there will be
changes.  North Carolina, for instance is making noises about
getting rid of its intangible personal property tax (tax on
receivables, etc. - yuk).
      Then, of course there are those who live and work on deep
sea oil drilling platforms, or work as sailors on Great Lakes
freighters (one such fellow sailed between  or Air Crew on
Qantas, Canadian Airlines International, Air Canada, BOAC, LIAT,
etc., and based in Amsterdam, Sydney, Honolulu, Seattle, or
Auckland, New Zealand).
      And I shouldn't forget people who live in the United States
and have property in Canada which they rent out or have made an
investment in a brother's Canadian business or a Canadian ski (or
even "all season" resort).
      Some of our clients have Xmas tree farms in Northfield,
Minnesota, orange groves in Florida, and almond plantations in
California.  Others are Finish citizens who live in Germany and
work part of the year in the U.S. and part of the year in Canada.
My favourite client (sorry everyone else) is likely a U.S.
citizen with a wife in North Vancouver and businesses in the
Philippines, New Zealand and Washington State.  On his last
visit, he brought his 84 year old American mother from Seattle.
Wife, mother and client were flying off to Manilla the next day
and mother was worried because the Sears store at Capilano mall
had turned down her Gold Visa Card. "What was she going to do for
money on her trip?"  A call to her trust officer in Seattle
ascertained that her card was okay and NO AUTHORIZATION HAD BEEN
ASKED FOR BY SEARS. We had no trouble getting an approval through
our own VISA account, so it must have been the SEARS computer
system. However, this dynamic lady, who had $800,000 U.S. on
deposit in her accounts, was embarrassed and distraught, and it
will be a long time before she shops at SEARS again.
      Then there are the soccer players, the hockey players, the
basketball players, the seminar presenters,  the Hollywood
actors, the Ice Capades skaters, and the odd South American or
European or Iranian refugee and the question always arises, "who
is going to tax them?" In the case of a Hockey player like Wayne
Gretzky, he has to file a "state" tax return in every state in
which he played hockey or makes a personal appearance, likely
about 22 states.
      Canadians usually compare their combined federal and
provincial taxes to the basic federal U.S. taxes without thinking
about the state taxes and extra medical costs. Although some
states have NO personal income tax, most do.  "Some" (there are
over 6,000 current forms) forms and information are given here:
      State            Tax form Number
      Alabama          40
      Alaska *         No personal state income tax form (estate
/corp yes)
      Arizona *            140
      Arkansas *            1000
      California *         540
      Colorado *            140
      Connecticut *            CT-1040
      District of Columbia     D-40
      Delaware         200-01
      Florida *            No income tax (is tangible personal
property / estate / corp  tax)
      Georgia *            500
      Hawaii *         N-12
      Idaho *               40
      Illinois *            IL-1040
      Indiana *            IT-40
      Iowa             1040
      Kansas *         40
      Kentucky *            740
      Louisiana *          IT540
      Maine                 1040ME
      Maryland *            502 plus city and county taxes
      Massachusetts *      1
      Michigan *            MI-1040 plus 12 city tax returns
      Minnesota *          M-1
      Mississippi *            62-101
      Missouri *            M)-1040
      Montana *            2
      Nebraska *            1040N
      Nevada *         No state income tax (is a $25 / employee
business return)
      New Hampshire *     1040 for business proprietorship only
      New Jersey *         1040
      New Mexico *         PIT-1
      New York *            IT-201 plus New York City / Yonkers
city returns
      North Carolina *       D-400
      North Dakota *         37
      Ohio *                IT-1040
      Oklahoma *            511
      Oregon *         40N
      Pennsylvania *           PA40R plus Philadelphia city
return
      Puerto Rico         No individual income tax return
      Rhode Island           RI-1040
      South Carolina *       SC1040
      South Dakota           No Individual income tax return
      Tennessee *          RV-0368 - only interests and dividends
included
      Texas *               No individual income tax return (are
estate / corp taxes)
      Utah *                TC-40
      Vermont *            103
      Virgin Islands      No personal, corp, estate, income taxes
      Virginia *            760
      Washington *         No personal income tax
(estate/personal prop / yes)
      West Virginia *       IT-140
      Wisconsin *          1
      Wyoming *            No personal, corporation or estate
taxes
      (*) denotes we have recently prepared returns involving
this state)
      Note that state income taxes range from none to a high of
about 10% in California.
      The personal property taxes are important as well.  In the
state of Washington, for instance, you can easily get a
retroactive $5,000 personal property tax bill on the boat you
have kept there for the last 4 or 5 years.  Licensing your new
Cadillac in the state of Washington will cost you an extra $600 a
year in personal property taxes.
      "WATCH OUT BORDER WORKERS"
      It used to be that people who lived in the United States
and worked in Canada paid no tax to the U.S. because the higher
Canadian income tax meant that the U.S. resident got credit for
every cent by filing the Form 1116 and claiming a foreign tax
credit. That is no longer true if the total income (after the "up
to" $72,000 exemption) is over $45,000 for a family or $33,750
for an individual or $22,500 for a married person filing
separately. The Alternative Minimum Tax (Form 6251) means that
only 90% of the foreign tax credit can be claimed. (Note, AMT
kicked in at $40,000, $30,000 and $20,000 from 1987 to 1993 - It
is now $22,500, $33,375, and $45,000 for 1994, 1995,   1996, 1997
and 1998).
      If you are a U.S. citizen who has not filed your past
returns, you should catch up your returns from 1987 to the
present.  We regularly prepare 1987 to 1998 returns for U.S.
citizens who have been "caught" or who are just trying to catch
up legitimately.
      For example, in a 1990 return for a man earning $70,000 in
Canada and a woman earning $10,000 in the U.S., their Alternative
Minimum Tax worked out to about $500.00 U.S. However, if she had
made $20,000 in the U.S., there would have been enough U.S. Tax
paid that the Alternative Minimum Tax would not have kicked in.
Since the 1991 rate for the AMT is going from 21% to 24%, it is
expected to more than triple the number of people who will be
caught in this situation. Persons in this situation should plan
on making sure that they have some U.S. income to knock out the
AMT in the U.S. In the above case, I had prepared the return and
sent it in, before another return pointed out to me that there
was a tax liability under AMT and I had to phone the couple and
say "mea culpa".
      Note that the AMT is 26% for 1993 and 1994, 1995, 1996,
1997, 1998, and 1999.
      WHERE DO THEY LIVE?
      What country is going to tax them?
      The answer is not always easy. I am going to quote directly
from the U.S. / Canada Tax Treaty because that is the one we use
most often, but the same general rules apply with all treaty
countries. At the moment, Canada has signed treaties with 78
countries and is working on another 27. We have had several cases
where people have already paid $16,000 or $25,000 in tax to
Canada because they are clearly residents under most meanings.
However, because of the following "TIE BREAKER" rules, we are
getting back all tax paid on dollars earned in the other country.
      CANADA / UNITED STATES INCOME TAX TREATY 1980
      There are many, many treaties.  The articles tend to be
fairly consistent so that when some one comes in from Indonesia,
I am able to quote Articles IV, IX, X, and XI etc., and look like
a real expert on Indonesia, even if I have not looked at it
before.  The following ARTICLE IV for instance has been used by
myself more often for Australia and Germany than for the United
States.
      Please also note that a NEW US / CANADA TREATY was signed
on August 31, 1994 and with various changes took effect on Jan 1,
1996. Parts of it (estate and capital gains) are retroactive back
to November 10, 1988.  This new Treaty totally changes the rules
between the two countries for estate and capital gains tax upon
death. It also completely changes the rules for the taxation of
U.S. Social Security, Canadian Old Age Pension and Canada Pension
Plan. Gambling losses are going to be allowed for Canadians as
well.  See the December 1995 edition of the CEN-TAPEDE for more
information.
      The "boxed" parts of the following treaty following are the
parts taken out as of  January 1, 1996.  The treaty as printed is
as it should be now. It was slightly different 1980 to 1995.
      Article IV - Fiscal Domicile - (it is the same number in
most treaties)
      1980 to 1995. For the purposes of this Convention, the term
"resident of a Contracting State" means any person who, under the
law of that State, is liable to taxation therein by reason of his
domicile, residence, place of management, or any other criterion
of a similar nature. But this term does not include any person
who is liable to tax in that Contracting State in respect only of
income from sources therein.
      1996, 1997, 1998 & 1999. For the purposes of this
Convention, the term "resident of a Contracting State" means any
person who, under the law of that State, is liable to taxation
therein by reason of that person's domicile, residence,
citizenship, place of management, place of incorporation or any
other criterion of a similar nature, but in the case of an estate
or trust, only to the extent that income derived by the estate or
trust is liable to tax in that State, either in its hands or in
the hands of its beneficiaries. For the purposes of this
paragraph, a person who is not a resident of Canada under this
paragraph and who is a United States citizen or alien admitted to
the United States for permanent residence (a "green card" holder)
is a resident of the United States only if the individual has a
substantial presence, permanent home or habitual abode in the
United states and that individual's personal and economic
relations are closer to the United states than any other third
State.  The term "resident" of a Contracting State is understood
to include:
      (a) the Government of that State or a political subdivision
or local authority thereof or any agency or instrumentality of
any such government, subdivision or authority, and
      (b) (i) A trust, organization or other arrangement that is
operated exclusively to administer or provide pension, retirement
or employee benefits, and
          (ii) A not-for-profit organization that was constituted
in that State, and that is, by reason of its nature as such,
generally exempt from income taxation in that State.
      2. Where by reason of the provisions of paragraph 1 an
individual is a resident of both Contracting States, then his
status shall be determined as follows:
      (a) he shall be deemed to be a resident of the Contracting
State in which he has a permanent home available to him. If he
has a permanent home available to him in both Contracting States,
he shall be deemed to be a resident of the Contracting State with
which his personal and economic relations are closer (centre of
vital interests);
      (b) if the Contracting State in which he has his centre of
vital interests cannot be determined, or if he has not a
permanent home available to him in either Contracting State, he
shall be deemed to be a resident of the Contracting State in
which he has an habitual abode;
      (c) if he has an habitual abode in both Contracting States
or in neither of them, he shall be deemed to be a resident of the
Contracting State of which he is a national;
      (d) if he is a national of both Contracting States or of
neither of them, the competent authorities of the Contracting
States shall settle the question by mutual agreement.
      1980 to 95. Where by reason of the provisions of paragraph
1 a person other than an individual is a resident of both
Contracting States, the competent authorities of the Contracting
States shall by mutual agreement endeavor to settle the question
and to determine the mode of application of the Convention to
such person.
.
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