Sent: Thursday, November 30, 2006 12:12 AM To: taxman at centa.com Subject: Director's Fees David, My wife is a Director of a family-owned business in Canada. She attends meeting(s) in Canada and earns "Director's Fee" income (T4 slip issued by company) every year. Though she is a resident of USA, she submits an annual Canadian tax return paying taxes due and declaring that this is her only worldwide income (Schedule A), which it is. For the US taxes, she declares this income as Self-Employment income and also submits Form 1116 for taxes paid in Canada. Last year (2005) things changed on the Canadian side: 1) CRA now charges a Surtax on Non-Residents of 48% of tax due!! (Schedule 1). 2) In the past, she has submitted Alberta taxes (where the income was earned) and paid those according to the calculated value. But this year, the CRA overruled the submitted tax return and re-calculated with NO Alberta tax (to her benefit of course). My question is: Do we or do we not pay Alberta tax based on this situation?? Thanks for your email list service!!!! =============================================== david ingram replies: If she living in the US and was flying for Air Canada as an employee from Vancouver to Ottawa and back in this following flight plan, her tax would be calculated as follows in a multi-jurisdictional tax calculation. Flies Vancouver to Calgary - One half of this flight credited to BC other half to Alberta Calgary to Toronto One half to Alberta and the other half to Ontario Toronto to Ottawa All this flight credited to Ontario Ottawa to Toronto all flight credited to Ontario Toronto to Chicago about 5% to Ontario, the balance to USA Chicago to Calgary about 5% to Alberta, the balance to USA Calgary to Vancouver one half to Alberta, one half to BC Using the CRA logic in this calculation, there is no doubt that a non-resident of Canada owes the tax to the province where the services were performed. This answer was based upon your statement that a T4 slip (employee status) was issued. If in fact, it was a T4A (self employed) than she might not owe any tax to Canada under the terms of Article XIV of the US/Canada Income Tax Treaty as she has no fixed base of operations in Canada. If she has a fixed base, then she should be paying tax to Alberta and the Feds. -------------- File it as an Alberta return. If the CRA wants to change it, let them. It is easier than spending any time or money to make them consistent in their assessing. In other words, this drives me crazy because they never do two alike and the persecution of some 400 CAIL and AIR CANADA employees by making them file these silly returns is just a lot of make work. You can see my own frustration here. However, it is not worth your spending any time on it. One time when it happened with one of my clients with regard to BC, I wrote a letter to Premier Campbell (whom I know reasonably well) and the Minister of Finance at the time. The letter pointed out that the province was losing money. I did not receive a reply from either of them on what "I" thought was an important matter. However, you may have another problem. If your wife owns 5% or more of this family business, she has to file US form 5471 for the company. Failure to file can have penalties of up to $500,000 plus 5 years in jail. the following old Q & A explains it a bit --------------------------- taxman at centa.com: Please see bottom of message if you wish to unsubscribe. If you are new to the list, you were probably added because you sent a question to taxman at centa.com, posted a question online at www.centa.com or possibly at www.jurock.com ------------------------------------------ My_question_is: Applicable to both US and Canada Subject: IRS 5471 Expert: taxman at centa.com Date: Tuesday November 22, 2005 Time: 06:07 PM -0800 QUESTION: I hold dual US and Canadian citizenship, and I work as a consultant in the Information Technology field. In April of this year, I incorporated in order to limit risk in the event of a lawsuit related to errors and omissions, and to have greater access to consulting contract - many clients require incorporation to avoid WCB, CP, and OAP liabilities in the event that CCRA deems me to be an employee of the Client etc. As far as I can tell, I am a Category 2 filer of IRS form 5471, as I am the sole shareholder and president of my incorporated Company. The question I have is whether I should be drawing a salary (Earned Income) or receiving Dividend Income from the Company, for my role as President? In other words, which approach would yield a lower combined (US Personal + Canadian Personal + Canadian Corporate) tax liability? ============================================================================ == david ingram replies: I have not done the calculation for a while but the last time I did it, taking a $40,000 salary and the rest in dividends "increased" the overall tax by about 1/2% when you added the corporate and personal tax together. In addition, a salary of up to $80,000 US is exempted under US law and as of 2005 does not affect the AMT calculation. On the other hand, the dividends or retained earnings become taxable and require 116 forms to be filed. You have to do the specific calculations to get your answer. I know why you have the Cdn Corporation but you have lost the benefits of a proprietorship. With a corporation, it is extremely difficult to make your personal mortgage deductible. Try reading the November 2001 newsletter in the top left hand box at www.centa.com ============================ For the purposes of the 5471, it is 1000 times easier to do the form if you have paid all the profit to your self or you and your spouse as a salary leaving zeros for the 5471 calculations. ============================ Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a regular guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com <http://www.600am.com/> Call (604) 280-0600 to have your question answered. BC listeners can also call 1-866-778-0600. Callers to the show and questioners on this board can also attend the Thursday Night seminars on finance and making your Canadian Mortgage Interest deductible. Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one of 17 different financial seminars in the boardroom of his office Time: 7:00 to 9:30 PM Date: Every Thursday evening Place 1764 West Seventh Vancouver (corner of Burrard) Phone (604) 731-8900 to register No cost - no obligation Topics always cover mortgage interest as a deduction other topics - getting the mortgage, estate planning, critical care insurance, income taxation, differences between stocks and bonds, and usually the most innovative HELOC mortgage offered in Canada from Manulife Bank If you are starting in downtown Vancouver and do not want to go home first, one of the excellent THAI HOUSE restaurants is in the same building and makes a nice start to the evening. I, david ingram, manage to make three out of 4 of them to cover mortgage interest as a deduction and give the class an adding test. David Ingram's US/Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists Home office at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com/> www.david-ingram.com <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com <http://www.centa.com> . If you forward this message, this disclaimer must be included." Be ALERT, the world needs more "lerts" This from "ask an income tax and immigration expert" from www.centa.com <http://www.centa.com/> or www.jurock.com <http://www.jurock.com/> or www.featureweb.com <http://www.featureweb.com/> . David Ingram deals on a daily basis with expatriate tax returns with: multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax Immigration Wizard Antarctica Rwanda Guru Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Garland, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. Pennsylvania, Rhode Island, Rockwall, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec City, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Yukon and Northwest and Nunavit Territories, Mount Vernon, Eumenclaw, Coos Bay and Dallas Houston Rockwall Garland Texas Taxman and Tax Guru and wizzard wizard - consultant - expert - advisor -advisors consultants - gurus - Paris Prague Moscow Berlin Lima Rio de Janeiro, Santaigo New York, Boston, Sacramento, Minneapolis, Salem, Wheeling, Philadelphia, Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg, Naples, Fort Myers, Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay, Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton, Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego, Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa, Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham, Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence, Houston, Albany, Framingham, Cambridge, London, Paris, Prince George, Prince Rupert, Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon, Madrid, Atlanta, Myrtle Beach, Key West, Cape Coral, Fort Meyers, Berlin, Hamburg Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing, Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds, Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson, Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey, Edinburgh, Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo, Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto, Nanking, Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish, Churchill, Lima, Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton, Kelowna, Vernon, Fort MacLeod, Deer Lodge, Springfield, St Louis, Centralia, Bradford, Stratford on Avon, Niagara Falls, Atlin, Fort Nelson, Fort St James, Red Deer, Drumheller, Fortune, Red Bank, Marystown, Cape Spears, Truro, Charlottetown, Summerside, Niagara Falls, Albany STAR WARS ask international non-resident income tax expert preparation & immigration consultant david ingram, experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce CKBD 600AM 9 AM Sunday on Fred Snyder's IT's YOUR MONEY
