david ingram's US/Canadian Newsletter Mar, Apr, May, June, July, Aug, Sept, 98
U.S. / CANADIAN TAX AND IMMIGRATION NEWSLETTER
This is the first edition since February, 1998. I have no explanation for the absence of so many editions other than that I was too busy with tax, the ROGERS television shows and my appearances with Fred Snyder on CFUN.
My ROGERS Community Television program has been very rewarding. On July 9th, we were awarded the First Place (out of 1400+ entries) HOMETOWN Video Award. Starting Sept 21, 98 the INGRAM show will be rebroadcast at 2 PM in addition to its 11 PM rebroadcast. My thanks to everyone at ROGERS who helped to make this possible. In particular, I would like to mention Rob Carver, Peter Davison, Peter Helm, John Richardson and Furio Sorrentino. The show continues live at 9 AM Monday to Friday. You may want to catch my guest, Bill Vander Zalm at 9, 2 or 11 on Wednesday, Sept 23, 98. Bill has said he wants to abolish Provincial Income Tax. Me Too!
1)Cdn Truckers Taxable in United States Page
2)Multiple Jurisdictions for Income Tax in Canada
3)Specific Letter to Prime Minister Jean Chretien
4)Assistant Deputy Minister Barry Lacombe's letter
This September edition is an "expurgated" copy of a letter sent to Prime Minister Chretien's office because of the problems that employees of CANADIAN AIRLINES and AIR CANADA were having if they happened to live in the United States.
I am including this because it involves "real life" situations of approximately 250 actual individuals who had refunds of up to $100,000 held up while Revenue Canada fussed around asking for detail after detail about the residency of the individuals involved.
CANADIAN TRUCKERS MUST FILE UNITED STATES INCOME TAX RETURNS
I have being telling People who live in Canada and work in the U.S. (bus drivers, airline personnel, business executives, etc., that they had to file a U.S. Federal and State returns if they perform "any" duties in the U.S. Most of the time there is no tax to pay, "BUT" You have to file the tax return to claim money free of United State's income tax.
i.e. If you do not file the Income Tax Return to claim the exemption and the IRS or States of California or New York or Pennsylvania come along four years later, YOU WILL OWE tax on money that may have been tax free.
I recently traveled to Newfoundland in a motorhome. There was a leak in the left rear wheel seal and I bought a Canadian Trucking magazine which had a "wheel seal" headline and I thought I would learn what the truckers do about leaking wheel seals. To my intense pleasure, there was an article by a Boston Lawyer about U.S. Income Taxes being applied to Canadian truckers. The gist of the article was that the United States are demanding income tax returns from Canadian truckers back to January, 1992. Regular readers of the CEN-TAPEDE will recognize that I have been stating this fact for years. While I do not wish the problem on anyone, it is no different from the letters I have reproduced here and Mr Barry Lacombe's reference to American Airline pilots. Mr Lacombe is an Assistant Deputy Minister of National Revenue.
If you are working in the United States for any amount for any time, you are legally required to file a U.S. federal income tax return even if all your salary or remuneration is paid by a Canadian employer. You must also file a state return for 43 different states, even if paid by a Canadian employer. So, yes, if you made sales calls in person to a company in Chicago and you receive a salary, you are required to pro-rate that salary and file both a U.S. 1040NR and an Illinois IL-1040. If there is an income tax liability, Canada will give you a (usually) dollar for dollar credit and it will not cost you more tax. It just spreads the money around to where the work was performed.
This is different from the Canadian concept which usually (unless self-employed in a different province) taxes you in the province of residence.
However, in Canada, if you lived in Lloydminster, Saskatchewan and had a self-employed business in Lloydminster, Alberta, you would pay your provincial tax to Alberta at Alberta tax rates because that is where the business was located. (this only applies to self-employment as a proprietorship or partnership, it does not apply if you receive a T-4 slip from an employer, even if it is an Alberta Corporation that you own.
The following is an "expurgated" copy of a letter which I finally wrote to Prime Minster after over 50 letters and phone calls and about 200 hours of trying to get satisfaction for about 10 of my clients from a particular individual at Revenue Canada. Although I have no doubt that this individual was only "doing her job", the delays were causing heart ache and immense financial hardships for a class of individuals who happened to be U.S. citizens working for AIR CANADA or CANADIAN AIRLINES.
the CEN-TA GROUP
Jan 28, 1998
Right Honourable Jean Chretien (613) 992-4211
Prime Minister of Canada Fax (613) 941-6900
309-S Centre Block
Ottawa, Ontario, Canada, K1A 0A6
John Doe (names and addresses omitted), California, U S A, 92600
It has been eight years since I found it necessary to complain to the Prime Minister's Office about the treatment of a client or clients by Revenue Canada.
Let me explain.
This office prepares the international (US and Canada) income tax returns for approximately 1,800 people a year.
Several of those clients are employed by CANADIAN AIRLINES INTERNATIONAL and AIR CANADA.
A year ago a "special audit" started against airline personnel who showed "out of country" addresses on their Canadian income tax returns. To date, we have answered dozens of questionnaires, made numerous phone calls, and written interminable letters with little or no result.
Several of our clients had been in the Notice of Objection process and we had settled their 1995 income tax returns in the Oct / Nov / Dec / 97 time period for the 1994 and 1995 tax years.
In most cases, there had been demands for a 4 page form called an NR73 or NR74 form which after satisfactory acceptance by Revenue Canada would result in the issuing of the refund for the year involved.
However, after acceptance and notification that the 1994 and 1995 returns had been accepted by the Appeals Office, several clients then received another 10 page version designed especially for AIRLINE PERSONNEL
Although inconvenient and even silly in the case of those for whom we had filed the four page questionnaire in the previous three, four, or six months, we have now gone past an acceptable time period. Some clients, like John Doe are awaiting refunds of $22,000 while continuing to pay their United States federal and state income taxes.
In every case, we have provided copies of:
1. U.S. citizenship papers and / or resident alien cards;
2. United States Drivers' licences;
3. copies of three years of U.S. federal income tax returns;.
4. copies of Hawaii and California state tax returns where applicable. Note that some live in Texas, Washington and Florida states where no state income tax return exists;
5. other documentation showing residences, other U.S. employment, business investments in the U.S.; and
6. documentation in the form of trip logs showing the number of days or hours worked in Canada.
I have used the description of "special audit" for these individuals but I could almost use the word "POGROM". There is NO COMMONALITY among them other than their employment by a Canadian Airline.
A. Some are single females;
B. Some are single males;
C. Some are married females (to U.S. persons);
D. Some are married males (to U.S. persons);
E. Some live in same sex relationships with U.S. persons;
F. Some do not but have done so (John Doe is in this situation);
G. Some are U.S. citizens (John Doe is);
H. Some are U.S. resident aliens;
I. Some own or have owned U.S. businesses (John Doe does):
J. Some have part time employment in the U.S. (John Doe does);
K. Some own property in the U.S.;
L. Some still own property in Canada which is rented out under Section 216(4) (John Doe does);
M. Some still have recreational property in Canada (John Doe does not)
However, all these situations are irrelevant when Article IV of the US / CANADA Income Tax Treaty comes into play. The simple fact is that everyone of the clients of this office for whom we prepared a 1996 income tax return are clearly U.S. residents for Canadian Income Tax purposes.
In particular, Mr Doe is entitled to:
1. a refund of some $8,000 (plus interest) for 1995;
2. a refund of some $10,000 (plus interest) for 1996;
3. a refund (after 1997 is filed) of another $10,000 because XXXX XXXXXX of Revenue Canada refused to reduce the withholding tax while the "special audit" was taking place. (To her credit, she has given a "conditional" disposition for 1998 which will provide some relief.)
In addition, John Doe, and another 100 people are entitled to an official apology for the "run-around" they have received from Revenue Canada over the last year.
Revenue Canada's holding refunds has resulted in individuals having to give up their apartments, sell their cars, sleep on friends couches, and in almost every case suffer severe embarrassment "somewhere at some time" over their lack of financial resources.
In some cases, persons in this situation have been forced to stay at friends' relatives and, (I guess) strangers' places in Canada, because they did not have the money to get home to the States or the money to rent their own place in the U.S. In these cases, they did not have the money to pay for or rent a place in Canada either.
Because their stays (with relatives, etc) in Canada were caused by Revenue Canada's failure to issue refunds to which they were entitled (for 93, 94, etc), these individuals which only number three or four should not be ruled technical residents of Canada because they cannot prove they paid rent in the U.S..
the CEN-TA GROUP
copied to: XXXX XXXXXX (604) 691-4XXX
copy to and acknowledged by: _______________________________________
A. We also enclose a letter dated January 15, 1998 and signed by J Allan Dorff, Acting Assistant Director of Non-Resident Tax.
This letter refers to the late filing of the NR-6. If it arrived in Ottawa late, it would be a Post Office Strike problem. The NR-6 was mailed from the main post office in Winnipeg on the first day that the strike was over.
In addition, it refers to the fact that Fred Doe has to make tax deductions until Nov 1, 1998. This is ludicrous in the extreme. Does Mr Dorff not look at what he signs?
We phoned the non-resident accounts division and talked to James Walker at (613) 952-6990. He had no problem telling us that the letter was incorrect and no deductions had to be made because the property was in a loss position.
James Walker confirmed that the computer record showed the NR6 as having been filed on time and effective as of Jan 1, 1998.
B. Paragraph 4 of the Dec, 1996 Assessment Notice is an insult.
Paragraph 5 of the Assessment is plain silly..... He does not owe $10,512.51, Revenue Canada owes him $10,512.51. In addition, there is no outstanding Notice of Objection. The 1995 objection was settled months ago and apparently held up by XXXX XXXXXX putting a "plug" on the account.
ADDENDUM SEPTEMBER 9, 1998.
A letter was received in July from Mr Barry Lacombe, Assistant Deputy Minister of National Revenue. This letter explained the compliance requirements of Revenue Canada and stated that the respective refunds had been sent out as follows:
February 4, 1998 - a refund of $10,601 for the 1996 year,
March 5, 1998 - a refund of $9,874.37 for the 1995 year.
A quick perusal of my letter and a review of Mr Lacombe's letter will show that none of my complaints were answered. However, the refunds were gratefully received by this and other clients and all hassles seem to have stopped.
Individual states in the U.S. are now going after Canadian Trucking Companies and Truck Drivers who are operating in the U.S. The target date is back to Jan 1, 1992.
If you (or your company executives) are doing any business in the U.S. (even if just sales or buying trips), be advised that the company and its employees who perform any services in the U.S. MUST FILE U.S. federal and state returns.
Note that none of my specific complaints or observations were answered. The letter simply states that Revenue Canada is just doing its job. However, it is amazing how many were settled within days of my January 28, 1998 letter.
The next page is a reprint of that letter from Assistant Deputy Minister of National Revenue, Barry Lacombe. I am printing this letter to make the point that Revenue Canada has the right to look at "different types of employment, including airline pilots" whose time is logged so perfectly for income tax purposes. I already know that the U.S. government is going after Canadian truckers, whose time is also logged so beautifully that the U.S. has decided to go back to January 1, 1992.
A FURTHER COMMENT
All the Airline Personnel were required to pay tax to Canada on their earnings in Canada. The refunds were generated because they spent most of their time flying outside of Canada. As a non-resident of Canada, working for a Canadian Airline outside of Canada, they were not taxable in Canada on those earnings even though their Canadian Employer had withheld tax on gross earnings.
They do owe tax on their world earnings to the U.S. government. Individuals owe tax to the Country or State where the work is performed, not to the country or state where they are paid from.
Therefore, any Canadian trucker, actor, executive, salesman, purchaser, seminar attender, journalist, horse trainer, etc., who is performing any services in the U.S. (even if paid solely in Canadian Dollars by a Canadian employer) is ABSOLUTELY required to file a U.S. and likely a state income tax return.
Call 681-1646 and ask for a copy of a 1993 L A Times article which explains this very well.
CEN-TA Cross Border Services - Tax, Visas, Immigration