My_question_is: Applicable to both US and Canada Subject: Self-employed writer Expert: taxman at centa.com Date: Friday October 06, 2006 Time: 07:46 PM -0400 QUESTION: I am a self-employed writer, earning my income in the U.S., where my legal residence is in Colorado. However, I will have spent around 180 days this year in Vancouver, where I own a second home. From what I've read, I will be OK taxwise this year, but am worried about next year as I would like to become a permanent resident of Canada, and will be applying soon for permanent resident status. Is there anything I can do to avoid double taxation? Does being an official applicant for permanent residency help? ------------------------------------------------------------------------ david ingram replies There is very little double taxation although we do have one right now where the lady client has tax to pay to the US for 2002 because she sold some tax free shares in a CCPC (Qualified Canadian Controlled Private Corporation). In this case, one can make up to $500,000 tax free and she made $95,000. Because the US does not recognize the tax free status, she owes the US tax on the Canadian Capital Gain. However, it is not as bad as it seems. We have been able to carry enough unused Foreign tax credits forward from 98, 99, 2000 and 2001 to wipe out all the tax but $1,800 and that is a very small price to pay for the privilege of being able to work back and forth between the two countries at will. If you are in Canada more than 183 days, Canada has the right to tax on your world income whether you are here as a visitor or a permanent resident. If you are here for 35, 76, or 100 days with the intention of moving here, Canada has the right to tax you on your world income from the day you arrived. However, under the terms of the US Canada Income Tax Convention (Treaty). Article IV (2) a, b, c and d AND then Article XIV will govern which country gets first crack at what. If you are self employed and living in one country without a fixed base in the other country, the country of residence gets to tax you and you only pay social security tax to the country of residence. However, no matter who has first crack, the other country will give you a foreign tax credit for the tax paid to the other country. If effect, because of the foreign tax credits, there is rarely any double taxation. There is sometimes unexpected taxation as explained above. A place where Canada levies an unexpected tax is when an American has US tax free municipal bonds and Canada taxes them. Goto www.centa.com and read the Oct 1995 newsletter in the top left hand box and the US/Canada section in the second box down on the right hand side. (You will also find Article IV there.) They will go a long way towards telling you what your tax situation will be. And if you are a single person and arrange your Canadian affairs properly to make your Canadian mortgage deductible, you will pay LESS tax in Vancouver, Canada then in Denver, Colorado. ================ David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is 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 Vancouver (LA) time - (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 for expert help, assistance, preparation, or consultation 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" David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Saudi Arabia to Mexico to China or Chile - Cross border, dual citizen - out of country investments are all handled with competence & authority. 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