Canadian Income Tax while on TN

My_question_is: Applicable to both US and Canada
Subject:        Canadian Income Tax while on TN in US
Expert:         taxman at centa.com
Date:           Tuesday October 31, 2006
Time:           11:46 AM -0500
QUESTION:
Hi,
My husband is on TN (in US) since February 2006 and he has not worked in
Canada in 2006. I joined him on May 1st, 06 on TD (worked in Canada fron Jan
06 to April 06) and got my TN in July 06.
I want to know how the tax treaty works and how it apllies to us. Do we have
to file in both countries?
No home in Canada, just some credit cards and loans, which we have balance
on and cannot close.
---------------------------------------------
david ingram replies:
Your husband and yourself should both do departing Canada income tax
returns.  You will put the date of departure on the front of the return in
the space provided.  (It moves around so you will have to look for it).
Putting the date of departure down pro-rates your exemptions from about
$8,800 for the year 2006 to about $24.00 a day.  In your case, your personal
exemption amount would be about $2,900 based upon your living in Canada from
Jan 1 to April 30th.
Canada has a departure tax calculation which means that if you have left
mutual funds or a summer cottage, or are renting out your home while gone,
you should file form T1161 and maybe 1243 and 1244 if the assets have
generated a taxable profit.
The reason that they may have generated a taxable profit is that all of your
assets are deemed to have been sold (and then reacquired) at their FMV (fair
market value) at the time of leaving.
In your case, any joint assets will have two different departure dates.
Something to watch out for in particular is tax on a Home Buyer's Plan.  If
you have withdrawn money from RRSP's to buy a house and are paying it back
over 15 years, it is repayable within 60 days of your leaving or becomes
taxable on your departing tax return.
You know where we are if you need help because your US return is also
complicated the year you enter the US.  Most US tax preparers will not do
what should be done. You should have the same person do both
Because of the timing, it is likely that you should file a joint return
rather than individual dual status returns.  To file a joint return, you
have to report your world income for the year which means that your Canadian
Income from Jan to April will be included and you will claim a foreign tax
credit on form 1116 for the tax, CPP and EI you paid to Canada.
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