QUESTION:
SIR,
I AM A US CITIZEN CURRENTLY EMPLOYED FOR THE US GOVERNMENT AND HAVE BEEN ASSIGNED TEMPORARLY IN CANADA UNDER THE PRECLEARANCE ACT OF 1972. I AM WORKING AS A PRECLEARANCE OFFICER ON A WORK AUTHORIZATION FOR A FOREIGN GOVERNMENT.
THE US GOVERNMENT PROVIDES ITS EMPLOYEE WITH A FOREIGN LIVING QUARTERS ALLOWANCE WHICH IS NON-TAXABLE.
I RESIDE IN A HOME WHICH I PURCHASED IN CANADA.
MY QUESTION IS? AFTER MY TOUR ENDS AM I SUBJECT TO CAPITAL GAINS IN BOTH COUNTRIES.
I PAY TAX IN THE US.
THANK YOU,
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david ingram replies:
Your earnings or wages are tax free in Canada under Article XIX of the US / Canada Income Tax Convention (Treaty). However, you are a legal resident of Canada and can apply for an receive provincial medical benefits, your kids can go to school and everything is the same as for a Canadian citizen or PR (permanent resident).
You should file an annual Canadian Income Tax return and report the US income on line 104 of the Canadian return and then deduct every cent on line 256 under Article XIX of the Tax Treaty.
As a resident of Canada, any profit on your personal home is tax free.
As a US citizen, you are allowed up to $250,000 US profit per person if you have lived in the house for 24 out of the last 60 months.
The following older Q & A may give you some other ideas.
My_question_is: Applicable to both US and Canada
Subject: Canadian Government Employee living in US, working in Canada
Expert: [email protected]
Date: Tuesday January 30, 2007
Time: 03:11 PM -0500
QUESTION:
I am a Canadian government employee who works in Canada. I am applying for permanent resident status in the US, and will be moving there shortly. I was wondering what me tax obligations would be to either countries. I was told that as a government employee, I would not have to pay the US tax since my income comes from the Canadian government and the US has a tax treaty with Canada stating that each other cannot collect tax from the governments of the other country. I would like to know all the information before I make my move. I do not own any property or investments in Canada, but I plan on keeping a Canadian bank account, as that is where my paycheque will go. I will have to cancel my health insurance and transfer my car over. Thanks you for any help on the situation.
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david ingram replies:
Article XIX of the US/Canada Income Tax Treaty exempts an employee of the Canadian Federal Government from paying tax to the US government on their government paycheque when the Canadian lives in the US for any reason and the same situation applies in reverse.
For instance, a female US citizen working as a US border guard and living in Canada with her Canadian husband and three Canadian born children does NOT pay one cent of tax to Canada on her US Homeland Security income. She qualifies for BC Medical and will even qualify for a Canadian old age pension at 65 but does not pay tax on her US government income. However, any interest, dividends, capital gains or rentals or author's royalties ARE taxed by Canada.
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This is the actual treaty article
Article XIX
Government Service
Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, the provisions of Article XIV (Independent Personal Services), XV (Dependent Personal Services) or XVI (Artistes and Athletes), as the case may be, shall apply, and the preceding sentence shall not apply, to remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State or a political subdivision or local authority thereof
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CEN-TA Cross Border Services - Tax, Visas, Immigration
http://www.centa.com/article.php/20070322194616891