Candian citizen, tax filing in USA 8891 - TDF90-22.1 - T1161 - 



QUESTION:

Hi, i am a xxxxxxxxxxxxx and a Canadian citizen. I will be starting as a student instructor in PA, USA from June. I will have a J1 visa and my son and daughter and husband will have J2 visas. Once in USA all our income will be from USA and we wont have any Canadian income.Though we have RRSP and RESP savings here.My question is Do we have to file tax in Canada or USA?I will appreciate your expert advice.
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david ingram replies

If you are going to Philadelphia, or Pittsburg do yourself a favour and arrange to go a week or two early.

Then, be sure to:

1.    Visit the liberty Bell and Constitution Square - http://www.ushistory.org/libertybell/
2.   visit Ben Franklin's grave - http://www.ushistory.org/franklin/philadelphia/grave.htm
3.   visit the Afro american museum - http://www.aampmuseum.org/home/
4.   visit the Phladelphia Mint - http://www.usmint.gov/mint_tours/index.cfm?action=philadelphia
5.   Visit Valley Forge - http://en.wikipedia.org/wiki/Valley_Forge
6.   More important, visit the Suffragette Bell in Valley Forge - http://www.libertybellmuseum.com/Womansbell.htm
7.   Go to Amish Country to Lancaster or Intercourse and see what it is about
8.   If you can go all the way over to Pittsburg and drive Highway 40, the First National Highway in the US and stop at the Fort Necssity Battlefield Park. http://www.nps.gov/fone/  - At one time there was an average of a tavern every mile of this road and there seems to be a marker for every one.  Fort Necessity is where Washington became a General in 1763 and where the real start of the American Revolution started in 1754, ending 22 years later in 1776 with the raising of the Continental Army at Valley Forge.
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Why do I say this?  If you are a sdtudent instructor, you will not have time to sightsee.  You are going to one of the most historic areas of North America and you and your husband and your son and daughter if old enough will have seen more and know more in two weeks then most of the people you are working with.  i.e. you will be able to fit right in with the history of the Indian Wars and the abolishment of slavery and the story behind the American Revolution and the Civil War.

9.   On the way back from Fort Necessity stop at Gettysburg.  Make sure you see botht the National Parks Diorama AND the private one just east of the Park.  Drive around the Battlefield TWO times.  It takes two times to start figuring it out.  Walk through the graveyard.  If you can, take a ride on the Gettysburg Railway.

You have now become qualified to live in Pennsylvania.  After that, if you have time, you can do Fort Sumter in South Carolina and run up to Washington and see all the things there.  http://en.wikipedia.org/wiki/Fort_Sumter  - When I travel I wear a T-Shirt that says 'tourist from hell'

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Back to your question.

As a J1 semi-student, you are taxable on your US income in the US first.  If you claim tax treaty benefits (you do not have to), you will file a 1040NR and pay higher tax than if you do NOT claim treaty benefits and file a joint 1040 US tax return with your husband.  If you claim Treaty benefits, you will also have to report the income in Canada and pay more tax here.  Obiously, you do not want to claim treaty beneifts.

However, I want you to get PA driver's licences, PA car registration, and PA health insurance.  Give up all those things you have in Canada.

You can keep your RRSP and RESP accounts but you have to report their existence on US forms TDF 90-22.1 and 8891. Unfortunately, you also need to file from 3520 for the RESP.  See the following.  (We will be pleased to look after these for you, of course).  Under the terms of a J1 visa, your husband should be able to apply for a US work visa by the way.

You must file a Departing Canada tax return and report the date of leaving on Page one of  your T1.  If you were leaving any other assets but an RRSP and RESP behind, you would have to file form T1161.
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These older questions will help.
QUESTION:

We have watched the Cdn$ rise against the US$ and now wonder what the impact is if we cash in the RRSP's and bring the cash back to the USA.  It seems that the exchange rate would offset the tax impacts presuming of course that the exchange rate is temporarily high).

Logically there is Cdn penalty withholding and then the cash would be taxed at non resident rates.  Can we cash in in smaller amounts to get reduced rates?  

In the US what would happen?
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david ingram replies:

I am one of the people that thinks the Canadian Dollar will be worth $1.20 US.  However, I have been wrong before and will be wrong again.  However, you might want to hedge yiuor bets and just transfer 50% and be happy you did not do it three years ago.

A non-resident of Canada owes the Canadian governemnt 25% withholding tax when he or she withdraws an RRSP as a non-resident.

The principal part of the RRSP is not taxable in the US.

The total withdrawal (including the tax deducted) goes on line 15a and the taxable portion goes on line 15b on put zero on 15b and put the actual growth on schedules B and D if you know what the interest, dividends and capital gains portions of the increase are.  The increase in exchange will go on Schedule D for instance.

The taxable portion is the increase in value since the day you crossed the border to the US and will be the part you have been reporting and exempting every year on form 8891 and the previous reporitng you did under 89-45 and 2003-57, etc., etc.

Any tax paid to Canada will be deductible as a foreign tax credit on US form 1116 on a pro-rata basis.
 
You have also, of course been reporting the existence of the RRSP on form TDF 90-22.1  -  the hint about these two forms are the two questions at the bottom of schedule B. The 8891 is a new simpler form for the last three years and takes the place of the draconian 3520  mentioned in the bottom question.

This older Q & A will help you I hope.


I am a Canadian citizen and legal US resident. I've lived in Florida for 25 years and now, at 65, I'm considering taking distributions from a spousal RRSP with Royal Bank.
 
Unfortunately, income tax information I've received from different sources is terribly conflicting and, at worst, indicates that my nest egg will be gobbled up by governments. Is this something you can steer me straight on?


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david ingram replies:

If you roll the RRSP into an RRIF (Registered retirement investment Fund), The payer will have to deduct 15% non resident withholding tax under the terms of Article XVIII of the US . Canada Income Tax Convention (Treaty).

You will then report it again on form 8891 of your 1040 and there may or may not be US tax to pay.  If your income is high enough that youare in a federal 28% tax rate, there 'will' be tax to pay on the RRIF. 


You will claim the 15% tax paid to Canada on US form 1116.
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Now, you have been supposed to report the existence of that account to the Department of the Treasury in Detroit on form TDF 90-22.1 since 1989 when that law was passed and shown in bulletin 89-45.  Failure to report can be a penalty of a minimum of $10,000 to a maximum of $500,000 PLUS up to 5 years in jail for each year you did not report it.  See the bottom question on schedule B of your 1040 where your foreign trust requires the preparing and filing of a 3520.

Thankfully, you do NOT have to do a 3520.  the 8891 takes it place and is much easier.

The penalty for not also reporting the RRSP and its internal earnings to the IRS (it was the Dept of Treasury above)  is 35% of the principal plus 5% for each year it was not reported since 1989 when the reporting rules started.  The form 8891 is an exemption for paying the tax on those internal earnings.

See form 8891 at:  http://www.irs.gov/pub/irs-pdf/f8891.pdf

RELIEF

Although I know of over 1,000 people who have paid $10,000 fines for not filing form TDF 90-22.1, I (at this time) do not know personally of a single individual who has been fined under the 8891 / 3520 rules.  I also have NEVER seen a person fined for filing the TDF 90-22.1 forms late and voluntarily.

In my opinion, you should file the TDF 90-22.1 forms retroactively for six years.to the Department of the Treasury.

See Form TDF 90-22.1 at http://www.irs.gov/pub/irs-pdf/f90221.pdf Note the penalty of up to $500,000 plus five years in jail for failure to file.  The minimum fine is now $10,000.
 
You should file retroactive 8891 forms with a 1040X to the IRS for the same years.  Note that you are the BENEFICIARY so follow the Beneficiary rules.  The 8891 form is actually only 3 years old.  Before that, you just wrote out the information on a free form page but it is a convenient form to use retroactively.

Hope this helps and we would be glad to assist if needed.

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Hello,

Thank you in advance for your help

My situation is:

I am in USA under TN-Visa. I worked 255 days in USA in 2006 and I already filled
the 1040 and 1040NR as dual-status, based on the number of days in USA.

My question is:

Should I declare what I earned in USA to Canada revenue?
How can I avoid double taxation?
Do you do Canadian taxes?
Can I know the fees?

Regards
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david ingram replies;

Too busy in this last two weeks.

This might help

QUESTION: Hi David,

I am Canadian citizen, worked in Canada for the first 5 months of 2006. then moved to US and worked then for the rest of 2006. I have income from Canada employer, canadian bank and US employer. I filed tax return on my US income to IRS already. I haven't done canadian tax return yet. I had thought I only need to file canadian tax return on my canadian income. But it seems both CRA and IRS requested to report my world income to both. I am confused. What should I do to file the tax return to both? 

More specially, I received NR4 slip from CIBC bank. I could not find where to enter this form when I used Ufile.ca. 
How can I enter US W2 form into any Canadian tax form?
How can I enter T4 slip into US tax return form? 

thanks a lot!
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david ingram replies:

An NR4 does not go on the Canadian return.  It goes on Schedules B and 1116 of the US return

The T4 does not go on the US return unless you are filing as a year round resident as in 2 below.

I am too busy to come up with a new answer but this older one will give you an idea.


QUESTION: Hi David,

I really need your help in filling U.S tax and I am getting mixed messages which forms to file. 
I am a Canadian Citizen in U.S on TN visa for more than a year. 
I have RRSP in canada over 10,000 put in fixed bond and saving account in a bank. 
What do I need to file here and what forms do I need to fill. 
Do I still have to file tax in Canada for canadian earning? Please help.
____________________________________________________
david ingram replies;

You need to file a departing Canada tax return and file T1161 if you left more things than your RRSP behind.  The Canadian return will only include Canadian earnings although if you had a Home Buyers Plan, it is all due and taxable on the departing Canada return unless you have paid it back.

For the US, you have two choices:

1.   File a 1040NR dual status statement and a Dual Status 1040 Income Tax return with no standard deduction

or

2.   File a full 1040 which includes your Canadian income and gives you a full standard deduction and the right to file a joint return if married.  This is usually the best if you left Canada early in the year as you did.

If you can't figure it out, file an extension  form 4868 (find it at http://www.irs.gov/pub/irs-pdf/f4868.pdf )

and then send the information to us at the address in blue below to complete for you.
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On February 11, 2008, David Ingram wrote:

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However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. For the last two weeks, I have just found out that my own email notes to myself have been spammed out and as an example, as I wrote this on Dec 25, 2007 since June 16th, my 'spammed out' box has 47,941 unread messages, my deleted box has 16645 I have actually looked at and deleted and I have actually answered 1234 email questions for clients and strangers without sending a bill.  I have also put aside 847 messages that I am maybe going to try and answer because they look interesting. -e bankruptcy expert  US Canada Canadian American  Mexican Income Tax service and  help
Therefore, if an email is not answered in 24 to 48 hours, it is likely lost in space.  You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER from 'me', you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321.  david ingram expert  US Canada Canadian American  Mexican Income Tax  service and help.
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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.
 
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 recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

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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