TN - Canadian FACTUAL, US resident, or both - Try both -



Dear David,

After reading some postings regarding TN workers in USA and tax implications, I have several questions.
 
It seems that a TN granted by USA is contingent upon temporary employment and Canadian
Citizenship, but not Canadian residency.  I have been on TN status since 2001, but filing as a Canadian
resident although not living in Canada except occasional visits.  I am single without dependants, and
have the following Canadian items: rented apartment, RRSPs, Bank accounts-Credit Cards and a few
investments, Drivers licence, - no property. 
 
Though my work is temporary based to obtain the TN, all my employment is in USA, either W2 or 1099.  I have been filing as a Canadian resident, and wondering if that approach has been a mistake.  As I am living and working in California (or any other state), can I be considered a Non-resident Canadian? 
 
I gather from most of your replies regarding TN workers that I should file departure from Canada, and pay only US federal and state income taxes.  I would like to take that approach as the tax liability is estimated to be lower than what is paid by a resident of Canada (Quebec). 
 
Would the Canadian items mentioned above prevent me from departure from Canada for tax purposes, and subject to a NR73 assessment?  Is there more to consider apart from filing departure from Canada, and then reporting non-employment Canadian income in the US 1040, TDF 90-22.1 and 8891, and California 540?
 
Is a possible return Canadian residency complicated?
 
Thanks for your consideration,
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david ingram replies:

Under the circumstances you describe, you have left yourself open to being taxable by both countries  on your world income.  You are a taxable resident of the USA because of your physical presence for more than 183 days AND your employment and visa.

Canada will want to tax you as a FACTUAL Resident because you are a Canadian with an apartment, driver's licence and investments.

However you are a FACTUAL resident of Canada eligible for Exemption of your US income by virtue of Article IV of the US Canada Income Tax Convention.

You would report all of your income as a resident and deduct all of the US income on line 256 as a taxable resident of the US.

All of your income including your Canadian investment income must also be reported on the US 1040 and your state return.

You would claim a foreign tax credit for the tax you  paid to Canada on US form 1116.

You are subject to big US forms if you have not been filing US forms 8891 and TDF 90-22.1.

People who leave Canada as factual residents are also supposed to file form T1161 and maybe T1243 and  1244.

If you do not have a California driver's licence and are in a serious car accident, you will also find out that you are driving without a licence.

You can access the rules for every state's drivers licences and vehicle registration rules at:

 http://www.usa.gov/Topics/Motor_Vehicles.shtml


If you still have Quebec Medical it is not valid as you have to physically sleep in Quebec for 183 nights a year to qualify.

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QUESTION:

Hi David,

I am a Canadian ctizen, married to a canadian. I came to US for my employment (US employer) in Feb. 2007 on two year contract. I am on H1B visa. My husband is still working in Canada. We have a joint mortgage in Canada and my husband live in that appartment. I am renting an appartment in US. How will I be filing my taxes now and what kind of tax benefits can I get? Please suggest to avoid me paying double taxes.
If I file my taxes through you, what will be your charges? 
Thanks


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david ingram replies:

There are many ins and outs.  If your husband goes down to visit you more than you  return to Canada to visit him, you are likely only taxable in The USA although you will be A FACTUAL RESIDENT OF CANADA, should file a Canadian return and report all your income, but deduct it all on line 256 under Article IV of the Treaty. 

We are likely in the $1,200 to $1,400 region for doing that return but you can find more in formation further down in my pricing suggestions.

These older questions will give you some other ideas.


Dear David,
 
My wife is going to work in the US. We have been married for 7 years and have a 20 year old daughter (I adopted my wife's biological child) who will be studying in the US for that period.
 
I am going to remain in Canada and we plan to visit each other during our holidays.
 
Is there any way my wife can pay taxes only to the US during this period? we would like to make an appointment with you to hear the details ASAP as we need to make a go or not go decision based on the answer.
 
Regards
 

--------------------------------------------

david ingram replies:

If you were separated, there would be no problem. 

However, as a married couple, the CRA will want to tax your wife on the basis that her family ties are in Canada BUT is she has her daughter with her AND if  'you' visit her in the US four times to one rather than her "coming home' every couple of weeks, she should be considered factual resident of Canada whose US income is exempt from Canadian tax under Article IV of the US / Canada Income Tax treaty.

Article IV of the Treaty reads as follows:

Article IV

Residence

1.  For the purposes of this Convention, the term "resident" of a Contracting State means any person that, under the laws of that State, is liable to tax 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, an individual who is not a resident of Canada under this paragraph and who is a United States citizen or an 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 to any 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 States or in neither State, 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, 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 States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

    (d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.  Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then if it was created under the laws in force in a Contracting State, it shall be deemed to be a resident of that State. Notwithstanding the preceding sentence, a company that was created in a Contracting State, that is a resident of both Contracting States and that is continued at any time in the other Contracting State in accordance with the corporate law in that other State shall be deemed while it is so continued to be a resident of that other State.

4.  Where by reason of the provisions of paragraph 1 an estate, trust or other person (other than an individual or a company) is a resident of both Contracting States, the competent authorities of the States shall by mutual agreement endeavor to settle the question and to determine the mode of application of the Convention to such person.

5.  Notwithstanding the provisions of the preceding paragraphs, an individual shall be deemed to be a resident of a Contracting State if:

    (a) the individual is an employee of that State or of a political subdivision, local authority or instrumentality thereof rendering services in the discharge of functions or a governmental nature in the other Contracting State or in a third State; and

    (b) the individual is subjected in the first-mentioned State to similar obligations in respect of taxes on income as are residents of the first-mentioned State.

The spouse and dependent children residing with such an individual and meeting the requirements of subparagraph (b) above shall also be deemed to be residents of the first-mentioned State.

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Under these circumstances, she can even file in the US as a head of household (with a non-resident non US citizen spouse with no US income) which will give her a very good US tax rate.

Phone Gillian Bryan at 604-980-0321 between 10:30 and 4 PM to make an appointment to see me if you wish.  Pricing, etc., follows:

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----

In 2005 I was living in Ontario, Canada and joined a U.S. company.  I continued to live in Canada through July of this year.  I seem to have significant tax “issues”.  Partly because I know the IRS does not withhold as much tax as Revenue Canada requires (I knew I would owe) and secondly, because I am not an expert tax preparer and I should have gone to the experts.  Revenue Canada has now completely disallowed my tax payments to the IRS as a foreign tax credit and are claiming I owe them a fairly significant chunk of money.

I think I need to go back and have a professional do my 2005 U.S. returns, which I never did.  I also will need some help/support with Revenue Canada to make sure that I get my foreign tax credit for the monies paid.  I will also have a professional prepare my 2007 return when the time comes because in this year, I have actually become a resident alien.  I am working and living in Pennsylvania now under and H1-B.

Can you help?

I will need an estimate of costs – I do not have a large budget but thought I would start by asking

My returns are not difficult at all.  I have simple income/deductions from a T4 and W2 in 2005 and just a W2 in 2006.  I have some charitable donations and that’s about it.  Pretty simple returns (I think).  My wife does not work, and I have two kids, aged 11 and 7.

Please advise if you can help.

Thanks in advance,

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david ingram replies:

1.   What you are asking for is what we do.  I can not tell if you  were physically working in the USA in 2005, 2006 and up to July 2007 and commuting or if you were telecommuting and working in Canada.  It is also different if you had a spouse and children in Canada or if you were in the US for most of the time and just kept your old house in Canada while waiting for the issuance of the H1B, etc.  In other words, if you were in the USA most of the time and came back to Canada sporadically,you may still have had ties to Canada but are not necessarily 'living' in Canada for tax purposes under Article IV of the US/Canada Income Tax Convention.  You may be a FACTUAL Resident exempt from Canadian Tax under Article IV of the Treaty.

And, if you were not sleeping in Ontario 153 nights a year, you did not qualify for OHIP.  If you did not qualify for OHIP in 2006 for instance, it is not reasonable that you should be taxable in Ontario but having a wife and two children in Ontario guarantees that  the CRA will try and tax you.  However, if your intention was to move and your wife and children were only remaining in Canada until the house sold or until your wife finished a course at Ryerson or something specific, you may not be taxable in Canada.

2.   In general, I quote $900 to $3,000 for a US / Canada income tax return and there is more clarity below.  Fixing something generally costs more than preparation in the first place if both countries are involved.  If your US return is correct, you are likely looking at $500 or $600 as a minimum and $1,000 to $1,200 as a high to repair the Canadian return.

You should go to www.centa.com and read the US/CANADA Income TAX section in the second box down on the right hand side.

Pay attention to the Wolf Bergelt Case where he was not taxed in Canada when he moved to the US even though his wife and four children were still living back in Ottawa.  You will find this in just about the exact middle of the section. And, on the other hand, David McLean was taxed when he came back after 7 years in Saudi Arabia.  It is important to recognize the differences between living in a treaty and a non-treaty country.
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--Hello There,
I was wondering if I could get some guidance.
I had left Canada in 2000 to work in the US on an LI (spec knowledge)Visa. I had lived there and work there and still do since then. However in 2002, My wife pursued her grad studies in BC,Canada and we exchanged visits.
Here are some facts:
1. I spent more than 10 months in the US (for residence determination).
2. I have had permanent residences in 2 separate states in the US all these years.
3. I have filed and paid US taxes and have been deemed a US resident for tax purposes.
4. I have maintained a bank account in Canada to pay for my wifes Tuition.
5. Every year since 2001 at Canadian Tax time (when my wife files her Canadian Tax return), I call revenue Canada and give them these facts and asked them if I have to file a Canadian Tax return and they respond with a No I do not have to do anything. However they ask me to call the International tax office and confirm. I do just that and they respond that I do not have to do anything as i am not a resident. (I wish I had taped them).

In any event I have recently received a letter from CCRA stating that I owe taxes from 2002-2006. I have informed them that i am a resident of the US for tax purposes. However because of my significant ties (My Wife, and bank account) I have been determined to be a factual resident.
Here are my questions.
1. What form do I need to fill out?.
2. Do they expect me to declare all my US income, after converting it to Canadian dollars (when I did not have the luxury of using all that converted amount which was very high in the former years), as I had spent most of it in USD living in the US.
3. How can I be a resident of two separate countries for tax purpose that have a tax treaty?.
4. CCRA refuses to listen to my questions (besides trying to find out what form to fill out) and simply states that inspite of being  a US tax resident, due to my significant ties, i am a factual resident of Canada and have to file and pay the horrendous amount of taxes assessed. I checked all the forms and they are correct
5.
6. I have a CCRA collections officer chasing me, while i am trying to get answers to my situation.
What are my options besides filing, which I intend to do as I do not want to face criminal charges.
Any help or advice would be appreciated.

Thanks and Cheers
--------------------------------------
david ingram replies:

I agree that you are a factual resident of Canada BUT, and it is a BIG BUT, you are A FACTUAL RESIDENT SUBJECT TO THE BENEFITS OF A TAX TREATY as described in the government's own T1 General guide.

For the 2005 year it is the top left hand paragraph "D" on page 10.

1.    File the Canadian returns and report all of your income and exempt it all on line 256 under Article IV of the US / Canada Income Tax Convention (Treaty).
.
2.   yes

3.   You can't be under the treaty  - However, intent is important.  If your wife is just studying and intending to move to the US when finished and you have a green card application in process, you are absolutely (in my opinion) only taxable in the US.  It also helps if she spends as much or more time visiting you in the US as you spend coming up to Canada to visit her. I tell people in your position to stay out of Canada and have your family visit you in the US.

4.    I disagree if you are intending to stay in the USA.      -- If, on the other hand,  there was never any intention to stay in the USA and you are intending to come back to Canada in a year and your wife never visited you in the USA and you made no effort to get a green card, the CRA might have a point but only might. Your physical presence in the US clearly makes you a taxable resident of the US. Your job means that your financial affairs are in The US.  It would help if you had filed a factual return each year since you left.

5.   ??

6.   That is his job.  Hopefully, the arbitrary assessments they have sent you are new enough you can file formal notices of objection - i.e. within 90 days of their issuance.

Get the returns done ASAP.  Glad to to do them for you if necessary.

--QUESTION:

Hi, I am currently working and living in USA. All my income comes from US employer. However, my spouse is living in Canada and she comes to USA to visit me bi-weekly. I am told by some tax specialist that I can be considered as deemed non-resident according to US-Canada tax treaty, thus I don't need to claim Canada tax. Is it true? Thanks.

------------------------------------------------------
  david ingram replies:

You are a factual resident and doing it right by having your wife visit you in the US rather than you fly home all the time.  Read on for more information.


My_question_is: Applicable to both US and Canada
Subject:        where do I file taxes
Expert:         taxman@centa.com
Date:           Wednesday January 30, 2008
Time:           01:33 AM -0000

QUESTION:

I have been living in the San Francisco since august 2005. I work for an american company. I fly home pretty much every weekend to Vancouver where my wife and kids live. I am on a H1B visa. Do I need to file in both the U.S. and canada every year or after this amount of time can I just file in the U.S.

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david ingram replies:

I am surprised that you are on an H1B.  I would have thought that the hotel would have transferred you on an L1 visa which is easier and faster for a manager with a multinational corporation.

If your intention is to stay in the US and you are waiting for your wife and children to join you, then you are a factual resident of Canada who has to file a Canadian return but would exempt everything on Line 256 under Article IV of the US / Canada Income Convention (Treaty). It helps in this case if your family flies down to join you in the US as often as you fly home.

If you are not intending to stay in the US and are just there for a short time and your family has no intention of moving, you are likely taxable in Canada because you are really commuting to a job in the USA.

You would likely do well to spend a few dollars and spend an hour with me.  The difference is thousands because you get to file a joint return in California.

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SUGGESTED PRICE GUIDELINES - May 17, 2008

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Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
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. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
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 received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

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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