QUESTION:
David,
Great info coming from your "ask an expert" questions. My husband and I are dual citizens moving back to Canada this summer.
1.We are buying a house in Toronto and want to use the mechanism of selling our US stock portfolio (non 401k) and put it towards the downpayment. We would then take a line of credit against the house to purchase the stocks back and deduct the interest payments on our tax return. I understand in Canada you must wait 30 days to buy back the portfolio, but since the funds are in the US, do I have to also wait this time period?
2. I will continue to work for my US employer (a University)while living in Toronto. I will be their only Canadian employee. They have a generous 403 plan (TIAA-CREF), which I also contribute to. Since now residing in Canada, should I stop contibutions and instead contribute myself to RRSP's? Any other heads up with the above overall arrangement of working in Canada for US employer? If I work into next year I will then meet the mimimun SS credit of 40 which I am short on right now.
3. Filing our US joint return, we are exempt from US taxes if under $US200M? ($80M+$80M+$40M married). If we make above this amount will the Canadian tax paid be taken into the calculations?
Regards
XXXXXXXX
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david ingram replies:
1. The 30 day rule is a capital gains rule and has nothing to do with the deduction of interest. Sell them, buy the house, borrow the money and buy back the stock in ten minutes if you can.
2. Watch out. If you leave the USA, even if you are paid from the USA, you are no longer eligible for payments into Social security. You have to earn the money working IN the USA to qualify.
When it comes time to apply, you have to prove your residence and even if you have made the payments, you will not qualify.
You only need about $3600 or so to qualify for 4 quarters in 2005 so make sure that you physically work in the US for at least two months in 2005 to qualify.
The other problem is that if you are paying US Social Security while working in Canada, Canada will not allow it as a foreign tax credit so you will be paying big money for something that you do not qualify for.
My suggestion is that you stay in the US working until you have your 40 quarters clear. THEN come back to Canada.
At any rate, you should stop any payments to a 401 or 403 plan while living in Canada. Canada will tax you on the amount of the contributions and the US will tax you again when it comes ou. It is a lose / lose situation.
3. The exemption is up to $80,000 for you and up to $80,000 for your husband. I have no idea what your reference to the $40,000 for a married couple involves unless you are referring to the $45,000 exemption for AMT in terms of the Foreign Tax calculation.
If you make $130,000 US and your huband made $40,000 US for instance, the exemptions would be for $80,000 for you and $40,000 for your husand and there would be $50,000 taxable to the USA. You would get full foreign tax credit on the first $45,000 of the $50,000 and have to pay Alternative Minimum tax on the excess $5,000. Don;t worry, it would only be about $100 in that example.
What happens is that after $45,000 of income over the earned income exemptions, the Foreign tax credit is limited to 90% of the credit applied otherwise.
The two of you might want to buy an hour of my time by phone.
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