This is a multi-part message in MIME format. ---------------------- multipart/alternative attachment Sent: Thursday, May 01, 2003 5:05 PM To: [email protected] Subject: I think you may be just the guy I need. David, I am a Canadian citizen, with American wife & 2 kids, 16 & 13) living in San Francisco. Aged 45, retired twice and getting ready to do it again. Although I am from Toronto originally, I love BC. Who doesn't? Given the ridiculous appreciation in my home's value here, the relative strength of the US Dollar, and the fact that I will be receiving modest pensions and passive income from both Canadian and US sources I have been giving serious thought to buying a place in BC. Possibly on Vancouver Island or perhaps around Deep Cove, North Van or ? Since I would prefer not to uproot my 13 year old daughter (my son is in college already) my thought is to buy something real estate wise to lock-in today's values, exchange rate etc. Preferably it should have income, (although if we drop down in value some appropriate land may be in order.) I have about $120,000 US liquid right now. My questions revolve around my basic concept ... does this make sense? should I retain US or go with Canadian residency, what are the tax implications etc. I'd probably plan to spend most winters in the US, I'd also like to continue to Broker limited amounts of commercial real estate in the US with a goal of generating $50 -75K per year in income. I'd like to discuss things very generally at first and if we feel that we can work together establish a consultancy relationship. Hope this is clear. P XXXXXXXXXXX ----------------------------------------- david ingram replies: I do not know where you found my name. However your situation is a very common one in our office. I also have a Canadian / American brother in San Diego and a Canadian American Sister with three children in Wheeling, West Virginia. I expect my brother will end up back in Canada in BC. I cannot imagine that my sister would ever think of leaving the US. She has adopted Wheeling and Wheeling has adopted her and her husband. The question of where you want to live as a "resident" is an interesting one which "YOU" are in control of. If you do as you suggest and spend 5 months in Canada and 7 months in the US, you will be considered a resident of the US for world wide tax and only taxable in Canada on any income arising in Canada If you spend 184 days in Canada and 182 in the USA, you will qualify for BC Medical and be taxable in Canada on your world wide income and although you report all your income to the US, you would only pay tax to the US on your US income because of Foreign tax credits for the tax paid to Canada. This last statement is factually true. However, even though you do not pay tax twice, you usually pay a higher tax to the host country because including the foreign income, raises the average or marginal tax rate. You can and should consider settling in some place like Semiamhoo or Bellingham. You would remain in the lower tax regime, could visit Vancouver or BC easily and escape California tax. The weather would be about the same. Hope this helps. I am available for phone consultations at the rate of $250.00 US per hour with a minimum hour call. If you talk for 45 minutes and then phone back the next day with a couple of minute phone call to clear something up, I do not charge for the follow up call. And on one more note, if you go to www.google.com and search for (income tax expert) (NO BRACKET - NO QUOTES). We usually come up on top out of about 495,000 possibilities. Go to our site and click on [U.S./Cdn Taxation] to read some of the rules and sample tax cases. Article IV (2)(a) is really important for you.. I have reproduced the first four pages of that section here. The reproduced part ENDS with Article IV. go to http://www.centa.com/U.S.Cdntaxation.htm to read the rest and the sample tax cases. Canadian Taxes, U.S. Taxes, Visas and Immigration, British Columbia Income Tax, Real Estate To Reside or Not (THE TAXING QUESTION) excerpt from david ingram's BORDER BOOK Jan 20, 2001 IT ISN'T ALWAYS YOUR DECISION GOVERNMENT(S) DECIDE FOR YOU! "WATCH OUT!!!" AMERICAN CITIZENS LIVING IN CANADA (or any other country) Every U.S. citizen or "green card" holder living out of the U.S. (i.e., in Canada) must continue to file U.S. income tax, gift and estate tax returns. They may exempt up to $72,000 U.S. of "earned" income, but if they have more than $72,000 of earnings or any amount of interest, dividends, rents, royalties, or pensions, they must file a U.S. income tax return and use a form 1116 (foreign tax credit) to claim credit for the taxes paid to Great Britain or Canada or Iceland, or Libya, or Borneo. (Note that the $72,000 figure was $70,000 prior to 1998). CANADIANS OUT OF CANADA This is a very important matter. In our US "working visa" practice, we counsel our clients on their US and Canadian tax liabilities when they are going to work in the USA. We find that most (certainly 95%) of the Canadians who get US working visas are given incorrect or at least incomplete advice about their US tax liabilities. For instance, a North Vancouver company sent over 200 employees to the US on TC and TN visas. The individual employees were being paid from Canada and were all filing Canadian returns and not paying tax to the USA where their first liability was when they were performing the service in the USA. US taxation is based upon where you perform the work. Where you "claim" to work is not important. Now, if you work in California and live in Vancouver with your spouse and children and earn LESS than $10,000 US, there will likely be no US FEDERAL tax liability because of the US / Canada Income Tax Treaty. However, there WILL be a California income tax liability. This chapter was new for the seventeenth (1990) edition of my Canadian Income Tax Preparation book. It came up because of the number of clients I have who are "out of the country." At any moment, I have over 500 clients who are Canadians living in Barbados, Fiji, Australia, New Zealand, New Guinea, Hong Kong, Saudi Arabia, Kuwait, France, Brussels, and another 50 countries. As well, they live in at least 20 of the U.S. states such as California, Alaska, New York, West Virginia, Nevada, Hawaii, Florida, North Carolina, Tennessee, Washington, Virginia, and Arizona. Note that some states have no (or limited) state income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state tax. Tennessee has tax on interest and dividends only. New Hampshire taxes proprietorship business income. And, by the time you read this, there will be changes. North Carolina, for instance is making noises about getting rid of its intangible personal property tax (tax on receivables, etc. - yuk). Then, of course there are those who live and work on deep sea oil drilling platforms, or work as sailors on Great Lakes freighters (one such fellow sailed between or Air Crew on Qantas, Canadian Airlines International, Air Canada, BOAC, LIAT, etc., and based in Amsterdam, Sydney, Honolulu, Seattle, or Auckland, New Zealand). And I shouldn't forget people who live in the United States and have property in Canada which they rent out or have made an investment in a brother's Canadian business or a Canadian ski (or even "all season" resort). Some of our clients have Xmas tree farms in Northfield, Minnesota, orange groves in Florida, and almond plantations in California. Others are Finish citizens who live in Germany and work part of the year in the U.S. and part of the year in Canada. My favourite client (sorry everyone else) is likely a U.S. citizen with a wife in North Vancouver and businesses in the Philippines, New Zealand and Washington State. On his last visit, he brought his 84 year old American mother from Seattle. Wife, mother and client were flying off to Manilla the next day and mother was worried because the Sears store at Capilano mall had turned down her Gold Visa Card. "What was she going to do for money on her trip?" A call to her trust officer in Seattle ascertained that her card was okay and NO AUTHORIZATION HAD BEEN ASKED FOR BY SEARS. We had no trouble getting an approval through our own VISA account, so it must have been the SEARS computer system. However, this dynamic lady, who had $800,000 U.S. on deposit in her accounts, was embarrassed and distraught, and it will be a long time before she shops at SEARS again. Then there are the soccer players, the hockey players, the basketball players, the seminar presenters, the Hollywood actors, the Ice Capades skaters, and the odd South American or European or Iranian refugee and the question always arises, "who is going to tax them?" In the case of a Hockey player like Wayne Gretzky, he has to file a "state" tax return in every state in which he played hockey or makes a personal appearance, likely about 22 states. Canadians usually compare their combined federal and provincial taxes to the basic federal U.S. taxes without thinking about the state taxes and extra medical costs. Although some states have NO personal income tax, most do. "Some" (there are over 6,000 current forms) forms and information are given here: State Tax form Number Alabama 40 Alaska * No personal state income tax form (estate /corp yes) Arizona * 140 Arkansas * 1000 California * 540 Colorado * 140 Connecticut * CT-1040 District of Columbia D-40 Delaware 200-01 Florida * No income tax (is tangible personal property / estate / corp tax) Georgia * 500 Hawaii * N-12 Idaho * 40 Illinois * IL-1040 Indiana * IT-40 Iowa 1040 Kansas * 40 Kentucky * 740 Louisiana * IT540 Maine 1040ME Maryland * 502 plus city and county taxes Massachusetts * 1 Michigan * MI-1040 plus 12 city tax returns Minnesota * M-1 Mississippi * 62-101 Missouri * M)-1040 Montana * 2 Nebraska * 1040N Nevada * No state income tax (is a $25 / employee business return) New Hampshire * 1040 for business proprietorship only New Jersey * 1040 New Mexico * PIT-1 New York * IT-201 plus New York City / Yonkers city returns North Carolina * D-400 North Dakota * 37 Ohio * IT-1040 Oklahoma * 511 Oregon * 40N Pennsylvania * PA40R plus Philadelphia city return Puerto Rico No individual income tax return Rhode Island RI-1040 South Carolina * SC1040 South Dakota No Individual income tax return Tennessee * RV-0368 - only interests and dividends included Texas * No individual income tax return (are estate / corp taxes) Utah * TC-40 Vermont * 103 Virgin Islands No personal, corp, estate, income taxes Virginia * 760 Washington * No personal income tax (estate/personal prop / yes) West Virginia * IT-140 Wisconsin * 1 Wyoming * No personal, corporation or estate taxes (*) denotes we have recently prepared returns involving this state) Note that state income taxes range from none to a high of about 10% in California. The personal property taxes are important as well. In the state of Washington, for instance, you can easily get a retroactive $5,000 personal property tax bill on the boat you have kept there for the last 4 or 5 years. Licensing your new Cadillac in the state of Washington will cost you an extra $600 a year in personal property taxes. "WATCH OUT BORDER WORKERS" It used to be that people who lived in the United States and worked in Canada paid no tax to the U.S. because the higher Canadian income tax meant that the U.S. resident got credit for every cent by filing the Form 1116 and claiming a foreign tax credit. That is no longer true if the total income (after the "up to" $72,000 exemption) is over $45,000 for a family or $33,750 for an individual or $22,500 for a married person filing separately. The Alternative Minimum Tax (Form 6251) means that only 90% of the foreign tax credit can be claimed. (Note, AMT kicked in at $40,000, $30,000 and $20,000 from 1987 to 1993 - It is now $22,500, $33,375, and $45,000 for 1994, 1995, 1996, 1997 and 1998). If you are a U.S. citizen who has not filed your past returns, you should catch up your returns from 1987 to the present. We regularly prepare 1987 to 1998 returns for U.S. citizens who have been "caught" or who are just trying to catch up legitimately. For example, in a 1990 return for a man earning $70,000 in Canada and a woman earning $10,000 in the U.S., their Alternative Minimum Tax worked out to about $500.00 U.S. However, if she had made $20,000 in the U.S., there would have been enough U.S. Tax paid that the Alternative Minimum Tax would not have kicked in. Since the 1991 rate for the AMT is going from 21% to 24%, it is expected to more than triple the number of people who will be caught in this situation. Persons in this situation should plan on making sure that they have some U.S. income to knock out the AMT in the U.S. In the above case, I had prepared the return and sent it in, before another return pointed out to me that there was a tax liability under AMT and I had to phone the couple and say "mea culpa". Note that the AMT is 26% for 1993 and 1994, 1995, 1996, 1997, 1998, and 1999. WHERE DO THEY LIVE? What country is going to tax them? The answer is not always easy. I am going to quote directly from the U.S. / Canada Tax Treaty because that is the one we use most often, but the same general rules apply with all treaty countries. At the moment, Canada has signed treaties with 78 countries and is working on another 27. We have had several cases where people have already paid $16,000 or $25,000 in tax to Canada because they are clearly residents under most meanings. However, because of the following "TIE BREAKER" rules, we are getting back all tax paid on dollars earned in the other country. CANADA / UNITED STATES INCOME TAX TREATY 1980 There are many, many treaties. The articles tend to be fairly consistent so that when some one comes in from Indonesia, I am able to quote Articles IV, IX, X, and XI etc., and look like a real expert on Indonesia, even if I have not looked at it before. The following ARTICLE IV for instance has been used by myself more often for Australia and Germany than for the United States. Please also note that a NEW US / CANADA TREATY was signed on August 31, 1994 and with various changes took effect on Jan 1, 1996. Parts of it (estate and capital gains) are retroactive back to November 10, 1988. This new Treaty totally changes the rules between the two countries for estate and capital gains tax upon death. It also completely changes the rules for the taxation of U.S. Social Security, Canadian Old Age Pension and Canada Pension Plan. Gambling losses are going to be allowed for Canadians as well. See the December 1995 edition of the CEN-TAPEDE for more information. The "boxed" parts of the following treaty following are the parts taken out as of January 1, 1996. The treaty as printed is as it should be now. It was slightly different 1980 to 1995. Article IV - Fiscal Domicile - (it is the same number in most treaties) 1980 to 1995. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management, or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that Contracting State in respect only of income from sources therein. 1996, 1997, 1998 & 1999. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation 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, a person who is not a resident of Canada under this paragraph and who is a United States citizen or 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 any other 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 Contracting States, 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, or if he has not a permanent home available to him in either Contracting State, 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 Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national; (d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 1980 to 95. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavor to settle the question and to determine the mode of application of the Convention to such person. . --- Incoming mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.476 / Virus Database: 273 - Release Date: 4/24/03 --- Outgoing mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.476 / Virus Database: 273 - Release Date: 4/24/03 ---------------------- multipart/alternative attachment An HTML attachment was scrubbed... URL: http://lists.centa.com/mailman/private/centapede/attachments/7a3b1dbc/attachment.htm ---------------------- multipart/alternative attachment--
