2nd REPLY to Help Repatriating US Medical Doctor To

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This is the second half of an original question about repatriating a US / Canadian Doctor to Canada.
The original question and answer can be found at the bottom of this reply.  It shows that the medical system in  the USA may not be perfect after all.
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David,
I'm happy with the gunslinger approach as banditos are everywhere. I'm
balancing losses from US malpractice insurance with potential Canadian
taxes and looking for the pony.
The immigrant trust won't work because my wife is also a dual citizen. 
Might any other form of US trust apply to my situation?
I'll forget about a Canadian professional corporation which has little tax
advantage and potential risk from IRS filing penalties, thanks for this
advice.
US Malpractice premiums have been increasing 40%  yearly for the past 3
years and for many docs are only marginally available.  Now faced with a
need to physically move to a friendlier state, reorganize finances for
asset protection, and increase productivity during  midlife (occupational
late life) to satisfy the insurance beast, Canada is once again on the
scope with some advantages (possibly not taxes).
Please follow my matchbook calculations to see if I'm understanding.  I'll
hope to gross $180K my first year back. With 33% overhead I'll be taxed on
$120K (about $90K US) mostly at high marginal rates (about 46% NB) because
of approx $60K (Cdn) of US investment income which must be declared to 
the CCRA. So I my earned net after tax is about $66K Cdn ($50K US).
The US will tax me on income over $80K ($10K in this example) and give me
a credit to be applied to the Canadian tax.  I'll have paid the US IRS
10-15% on the dividend and investment income. Will there be a tax credit
for Canada for this?
These questions may be too specific to interest your newsletter, then
again there are probably others out there, just like me.
Best, Tom
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david ingram replies:
If your wife is a Canadian, there is no trust, corporation or other entity that will help you legally.  Stay away from anyone who is trying to suggest that there is.  If such an animal existed, I assure you, I would be participating to increase my own income with fees for doing it.
In the scenario you have explained, you will pay 10% tax to the US on your interest (Article XI of the United / States Canada Tax Treaty) and 15% tax to the US on your Dividends (Article X).  You will pay NO TAX to the USA on your earned income in Canada because the extra $10,000 will be taxed in Canada first (where it was earned) and a foreign tax credit from CANADA will be applied to the US return and knock any US tax out.
Canada, will in turn, tax you on your dividends and Interest at Canadian rates and give you credit for every cent paid to the US. 
As a US citizen with the amounts you have stated, the tax return will calculate more than 10% and 15% respectively but Canada will only allow those amounts as a foreign tax credit.  this means that you have to reclassify your US income on your US return to fit within the treaty.  I can say that I have never seen this done properly on any tax return brought to my office from any other tax preparer. It is one economic advantage that I seem to have and it took a long time to get it through my head.  
In a commercial vein, you should be sending at least your first year of dual residency returns to us in West Vancouver. And, if you move to Shediak, you have to send me your picture in front of the Giant Lobster. (lobister)
Good luck! Welcome back to Canada! I love New Bruswick. 
david ingram
----- Original Message ----- 
From: [email protected] 
To: CENTAPEDE 
Sent: Sunday, November 30, 2003 9:02 PM
Subject:  Help Repatriating US Medical Doctor To Canada withoutlosing head - Income tax Guru taxman
David,
I'm a dual US/Canadian citizen Cdn born doctor interested in returning to
Canada for the final few years of my practice life. Family, malpractice
insurance, HMO's and fresh opportunity in Canada all motivate this.
My US invesment income will be taxed in Canada once I re establish
residence which appears to push virtually all of my Canadian earned income
into the top tax bracket.  Is there a way to avoid this?
Canadian friends set up Professional corporations but I'm told I would
need to report this on my US return quarterly as foreign owned corporate
income which sounds onerous, maybe impractical.
Am I right that my 401K and IRA would not be taxed by Canada until I start
making withdrawls?
I suspect there are others in this circumstance. Any suggestions appreciated.
Thanks, TXXXXXXXX
=============================================================
david ingram replies:  
Not a lot of doctors coming back, but some and that is good news for Canada.  The Malpractice insurance is the big thing with some doctors telling me that their proper malpractice insurance premium is as much as they grossed in their practice last year.  West Virginia seemed to be hit the worst and when CNN did their story on it, they used a hospital that my brother in law practices in. Clo9se to home as they say!
Whatever you do, you do NOT want to jump into a Canadian Corporation.  In fact, there are few medical doctors, dentists, lawyers and accountants who should be incorporated.  The problem is that it penalizes them in the early years because they cannot make their Canadian Mortgages deductible when incorporated.  See www.centa.com and read the November 2001 Newsletter.
In your case, we would have to file a form 5471 to the US government every year for your corporation. Your accounting costs triple.  And, failure to file the Foreign corporation 5471 bears a penalty of $10,000 for the first 90 days and $10,000 a month after that.  Ouch!
Your US investment income will certainly be added to the top of your income and taxed at the highest bracket.  What will happen is that your earned income will be taxed first in Canada and then in the US.  The US will allow a credit for the tax paid to Canada on any income over $80,000 US. we will exempt the first $80,000 on form 2555.  Because you will have US investment income you will not likely have to worry about any AMT (alternative Minimum Tax) because you will have been paying 10% tax on your interest and 15% tax on your dividends to the US government.
Canada will give you credit for every cent of the tax paid to the US in your circumstances as described.
=================
In a gunfighter approach, if your wife happens to be an American and not Canadian and has to immigrate to Canada we could set up your investments in a five year immigrant trust.  This would protect the income from Canadian tax but you would still pay tax to the USA on the income from the trust. A Canadian citizen does not qualify.
You were right about your 401(K) and IRA.  They are not taxable in
either country until withdrawal.
I am one of the few people who does both income tax and immigration work (39 years).  I would be glad to help if needed.
Goto www.centa.com and read the US/Canada Taxation section.  It is about 27 pages of stuff aimed mostly at US citizens living in Canada and will give you a lot of insight.  Note that I do not mention immigrant trusts there.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 
New email to [email protected]
www.centa.com www.david-ingram.com
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 & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist 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"
This from "ask an income tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa,  Thailand, Indonesia, Egypt, Antarctica,  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, American and Canadian and Mexican and any of the 43 states with state tax returns, etc.
  Alaska,  Alabama,  Arkansas,  Arizona,  California,  Colorado, Connecticut,  Delaware, District of Columbia,  Florida,  Georgia,  Hawaii,  Idaho,  Illinois,  Indiana,  Iowa,  Kansas,  Kentucky,  Louisiana,  Maine,  Maryland,  Massachusetts, Michigan, Minnesota,  Mississippi,  Missouri,  Montana,  Nebraska,  Nevada, New Hampshire,  New Jersey, New Mexico,New York, North Carolina,  North Dakota,  Ohio,  Oklahoma,  Oregon. Pennsylvania,  Rhode Island,  South Carolina,  South Dakota, Tennessee,  Texas,  Utah, Vermont,  Virginia, West Virginia, Wisconsin, Wyoming, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec City, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Yukon and Northwest and Nunavit Territories,  Mount Vernon, Eumenclaw, Coos Bay and Dallas  Taxman and Tax Guru Your name has been added to our email list because of an enquiry we have received,  we may not answer your question but 
another similar question will be as we lump them.
You may find more answers at www.centa.com
David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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