US Citizen moving back to US while partner stays in Canada - FACTUAL RESIDENT - Article 4 of Tax treaty - david ingram expert cr

XXXX  wrote: 
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My_question_is: Both

question: Hello,

I am an American citizen, Canadian PR who has been living/working in Canada for the last four years.  I am planning on taking a job in the US next year.  However, my common-law partner will stay in Canada (and I will come back to visit regularly).  Will I be a deemed non-resident?  Will my US citizenship and the tax treaty (and the fact that I will have a home and job in the US) shield me from the residential ties of a common-law partner in Canada.  Will the common-law status even remain valid after 12 months of keeping separate residences?  Thank you. 

XXXX

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david ingram replies:

First - whatever you do, get your Canadian citizenship BEFORE you leave.  There are no disadvantages and the advantage is that you can always come back if you are a Canadian citizen.  you do not need to worry about renewing your PR card.

If you intend to remain in the US, have a home and job in the US and are there more than 183 days a year, You will be a US tax resident.  The CRA might deem you a FACTUAL resident of Canada BUT Article IV of the tax treaty makes you a taxable resident of  the US.  As a factual resident with treaty benefits, you would deduct all of your US income on line 256 of the Canadian tax return under Article IV of the treaty.

In my opinion, this even applies if you are married. 

The common law status is an interesting one.   It is largely a state of mind as you describe it. If your common-law partner is staying in Canada because of medical problems for instance, you will be one of 300 or so couples i have been involved with where one stays in Canada or comes back to Canada because of medical.  As an aside, I have NEVER had anyone stay in the US because of the medical. system.

Remember, when you leave Canada, you have to file a departing Canada return. 

I also hope that you have been filling out forms TDF 90-22.1 and 8891 if you have a Canadian RRSP and / or more than $10,000 combined in Canadian accounts.  See questions 7 and 8 on Schedule B of your 1040 which you have been filling out every year you are in Canada.

The following older question on Factual residents will give you another look / viewpoint  at the subject,.

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David:
 
I have the following case asking for your advice:
 
Case Description: I have been married in 1990.  The marriage did not work out and during May 1993 I left Canada to USA. I used to have a house in joint tenant with my ex wife. She did not want to settle the divorce so during April 1994 I signed a separation agreement. I was in USA from May 1993 to Feb 1997. All my visits to Canada were less than 40 days per year. During February 1997 I returned to Canada to divorce. The divorce took two years. However, at the end of year 1999, I obtained the divorce and married with my present wife. During year 2000 CRA opened an investigation that during 1994 and 1995 I did not pay taxes to Canada, claiming misrepresentation from my part. The key point is that CRA is claiming that I was married at the time 1994 and 1995 rather than separated.
Question:  I was declared divorced (1999) before CRA re-assessed my 1994 and 1995 income tax. (Year 2000)  Could I win in the Tax court since CRA can not claim back taxes because I was divorced at the time of the re-assessment?  At the time of the re-assessment I was already divorced. This will give me non-resident status for the years 1994 and 1995. (I have complied with other ties requirements).
 
Best
 
 
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david ingram replies:

This was actually dumped by my system but the topic was too good and I had to comment.

You sound like a factual resident -  Appeal on the grounds of Article IV of the tax treaty. Your divorce in 1999 does nothing to deal with the assessments from the CRA.

The separation agreement in 1994 does.  You were also obviously separated in fact before the signing.  Have you given the CRA copies of your US Tax returns?  At the least, you are entitled to a foreign tax credit for taxes paid to the USA.  Have you given them copies of your US driver's licence, health insurance, rent bills, etc.?

Make sure you take a list of all of your US girlfriends for the time period.  Having them sign an affidavit to their relationship with you should work well in tax court but I am surprised it has gone this far from your description.

the following might help

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My_question_is: Applicable to both US and Canada
Subject:        Taxation
Expert:         [email protected]
Date:           Wednesday January 16, 2008
Time:           08:37 PM -0000

QUESTION:

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 in spite 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
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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.

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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. 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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