David Ingram. From xxxxxx xxxx. Need Tax Help - david ingram expert US CANADA cross border non-resident income tax help and prep

ingram replies:

Likely -   I assume you are a Canadian with A TN visa.

You can find my suggested price list at  - 
http://www.centa.com/CEN-TAPEDE/archive/Week-of-Mon-20080818/004120.html


In this case a 1099 is not usually the way you should be paid if you are actually living there and in a full time position,.

One of the terms of a TN is that you can NOT be self employed.


A 1099 implies self-employment.

On the other hand is you are living in Canada with your office in Canada and you are a management consultant going to the US for a day here and a day there, a 1099 is quite acceptable.
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these older questions will help a little.


My_question_is: Applicable to both US and Canada
Subject:        Getting Paid to the incorporated company while on TN Status in US....
Expert:         taxman@centa.com
Date:           Tuesday January 22, 2008
Time:           02:04 PM -0000

QUESTION:

Hello,

I have a TN Visa and I am working on a 1-year contract in US (state of New Jersey). The US Company who has hired me is giving me two options for the pay. The first option is to be on the hiring company’s payroll and file individual tax with W2 and my SSN (usual procedure). The second option is to incorporate in US and it will pay to my incorporated company and I will NOT receive any money directly on my personal name. My question is:

1. Is it legally possible for a TN holder foreign worker in US to incorporate and get paid to his incorporated company (to take advantage of small business related additional tax savings!)?
2. Do I need to file my personal tax return in US even if I do not have any personal income? Do I still need to apply for my personal Social Security Number and Card?
3. What additional procedure related to Canadian Revenue Agency?

An early response will be highly appreciated. Thanks in advance!

Regards

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david ingram replies:

Theoretically you can have a Subchapter S US corporation EXCEPT -

1.   the terms of the TN Visa are that you are working for the company who wrote the letter that got you the visa. If that company pays another company, 'you' are not working for the company for which your visa was issued.  Since a One Man company does NOT qualify for a TN, don't do it.

2.   Even if you did that, a Subchapter S corporation is a flow through entity.  The company does NOT pay US tax and theoretically, if you are working at the employer's place with the employer;s tools, you will not have any real tax deductible expenses.  Filing a tax return and claiming expenses might go through but one of the other rules of a TN is that you can NOT be self employed.

3.   If you are truly just there for a year and that s part of two years and you have left a wife and children behind, you will need to report the income to Canada.  If you are intending to stay in the US and are effectively leaving Canada with your family following later, you may file a factual resident return (until your family joins you) but will not be taxable in Canada because of Article IV of the US Canada Income Tax Convention exemptions.  If you are single, you have likely left.

The following older question might help

My_question_is: Applicable to both US and Canada
Subject:        Taxation
Expert:         taxman@centa.com
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 inspire 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.

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

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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