Home Buyers Plan in Canada & IRS Ask an International

QUESTION:
First of all thanks for a great tax site.
I’m a Canadian Citizen (Permanent US Resident) Wife is a US Citizen
(Permanent Canadian Resident) we both reside in Canada and commute daily for
employment in the US. In 2004 I withdrew money from my RRSP to purchase our
first house in Ontario and I’m hoping someone could answer a few questions
for me.
1. Would this withdraw not be taxable by IRS because of ARTICLE XVIII
Pensions and Annuities (if I'm reading it correctly)
2. I would need to file 8833 to take this election?.
3. The section of 8833 that is a little confusing is where it asks to”Check
this box if the taxpayer is a U.S. citizen or resident or is incorporated in
the United States” because I’m a permanent resident I always assumed that
you are taxed just like a US citizen.. so I’m not sure what my answer would
be.
Thank you for your time.
=============================
david ingram replies:
1.	I agree that it is tax free because it has not been withdrawn, you
borrowed it from the plan.  The plan still shows whatever amount you
borrowed as an asset.   And certainly XVIII clearly states that it is only
taxable in the US if taxable in Canada which it is not.
2.	File 8833
3.	You are a "resident" of the US for tax purposes becaus of your green
card.  However, it sounds to me like you should have a Commuter Green Card
as explained by Greg Boos in the following on the front page of
www.centea.com at http://www.centa.com/articles/alien_commuters.htm
Heck I will  just cut and paste it in.
 ALIEN COMMUTERS: U.S. RESIDENT STATUS WITHOUT U.S. RESIDENCE
Greg Boos J.D.
An earlier version of this article appeared in the 1993-1994 Immigration &
Nationality Law Handbook, American Immigration Lawyers Association,
Washington, DC, 1993.
Aliens admitted to the United States as lawful permanent residents (LPRs) or
as special agricultural workers (SAWs) with temporary residence may reside
in either Canada or Mexico and commute to places of employment in the United
Sates without loss of immigration status. Such "alien commuter" status may
be obtained either at the time of original entry as a resident of the United
States, or thereafter, if the alien has LPR or SAW status.
This article reviews the basics of alien commuter status as well as some of
its associated benefits and drawbacks. Practitioners can use the alien
commuter category to add creativity and flexibility to immigration options
available to their clients who reside in Canada and Mexico (particularly
those whose employment is relatively close to the border). Alien commuter
status allows such clients to retain their foreign residences and proximity
to relatives and loved ones, benefit from tax laws on concurrent business
concerns in both the United Sates and the home country, and for Canadians,
maintain subsidized health insurance coverage and other social benefits.
Status by Tradition
Alien commuters enter the United Sates as special immigrants (INA
101(a)(27)) - a privilege that does not require actual residence in the
United States if LPR status has not previously been surrendered or otherwise
lost. INA 101(a)(20). The ability to live in a contiguous country and
commute to work into the United States is available to both daily and
seasonal commuters.
Although there is no specific statutory authority for alien commuter status,
the Immigration and Naturalization Service (INS) and predecessor agencies
have traditionally permitted resident aliens who reside in contiguous
countries to commute to work in the United States. (Note: Contiguous
territory is any country sharing a common boundary with the United States;
because the nations and territories of the Caribbean are considered
"adjacent islands" their citizens are not eligible for commuter status.) In
1985, the last year for which the INS collected statistics, there were
almost 50,000 alien commuters traveling between the United States and
Mexico, and approximately 7,500 between the United Sates and Canada. With
the recent publication of regulations authorizing the expansion of dedicated
commuter lanes and other programs to speed border crossing by frequent, low
risk travelers, alien commuter status is likely to become even more
attractive. For details of these regulations, see the November 1, 1995
Immigration Law Report (ILR).
The administrative practice underlying alien commuter status dates from
1927, when the Bureau of Immigration, then a division of the Department of
Labor, ruled that commuters who became immigrants could cross the border
without the usual residence restrictions. According to Vol. IV, No. 13 of
Interpreter Releases (May 2, 1927), prior to this ruling, non U.S. citizens
who habitually crossed the border could obtain identification cards that
assured them easy entry and exit, and were not required to conform with
quota or other immigration restrictions then in effect. After the Bureau of
Immigration's 1927 policy took effect, such aliens seeking to enter the
United Sates for purposes of employment had to do so as immigrants. Although
native-born Canadians and Mexicans were not subject to quota limitations
because they were natives of the Western Hemisphere, they were subject to
literacy requirements - a burden which fell more heavily on Mexicans than
Canadians. The new policy had an even greater impact on third country aliens
resident in Canada or Mexico, generally of European birth, who were subject
to quotas. Nearly fifty years later, the Supreme Court in Saxbe v. Bustos,
419 U.S. 65, 74, (1974), upheld the administrative grant of "alien commuter"
status based on longstanding tradition and on Congressional acquiescence to
the practice.
Current administrative practice regarding alien commuters is set out in the
form of regulations and operations instructions (OIs), primarily 8 C.F.R.
211.5 and OI 211.3 and 211.4, which cover how alien commuter status may be
gained and lost as well as required documentation. These rules incorporate
several administrative court rulings that form the parameters of alien
commuter status.
Key Considerations
All alien commuters must have employment in the United States that is
"regular and stable." The INS interprets this to mean that the commuter is
not required to have full-time employment, but may have part-time or even
intermittent work if it is regular and stable. An alien commuter who has
been unemployed in the United Sates continuously for more than six months
may lose LPR status, despite any entries made into the United States within
that six-month period; however, if the unemployment results from a reason
beyond the alien's control, such as illness, the alien does not lose
resident status. Upon loss of LPR status, the alien must relinquish Form
I-151 or I-551, Alien Registration Receipt Card, or I-688, Temporary
Resident Card, to an immigration officer.
Potential Benefits
In addition to enjoying unrestricted employment authorization, some alien
commuters residing in Canada may avoid paying thousands of dollars in U.S.
social security taxes by seeking coverage under the Canadian Pension Plan.
Both Canada and the United States have social security systems that are
supported through taxation and afford benefits to their respective
residents. The U.S.- Canada Totalization Agreement rescues many people who
are covered by the Canada Pension Plan from paying U.S. social security tax
for work performed in the United States, although there is debate about
whether the U.S. Medicare contribution must still be paid by these
individuals. Unlike the North American Free Trade Agreement, the
Totalization Agreement may also benefit third country nationals who reside
in Canada.
Under the rules of the U.S.- Canada Totalization Agreement, self-employed
persons are taxed according to their place of residence, while those who are
employed by others are normally taxed based on place of employment. Alien
commuters resident in Canada may be employed by others are normally taxed
based on place of employment. Alien commuters resident in Canada may be
employed in both Canada and the United States. Additionally, when employees
are transferred from one country to the other on a temporary assignment of
five years or less, they may be still taxed according to their place of
normal employment. Thus, self-employed commuters, commuter employees of
Canadian businesses transferred to work in the United States for less than
five years as well as commuters who work for both a U.S. business and a
Canadian business may, under some circumstances, remain exclusively subject
to Canada Pension Plan payments and seek exemption from U.S. social security
taxes.
This is an important consideration because U.S. social security tax may be
several thousand dollars higher than its Canadian counterpart. The exemption
from U.S. social security taxation under the Totalization Agreement is not
automatic, generally, one seeking the exemption obtains a Certificate of
Coverage from Revenue Canada to present to the Internal Revenue Service
(IRS). Additionally, an individual spending fewer than 183 days in a
calendar year in the United States may be exempt from U.S. social security
taxation. Practitioners may desire to refer a client who is considering
assuming or abandoning "alien commuter" status to an international tax
specialist for an assessment of the tax consequences of such a move. For
more on the tax implications of commuter status, see box page 268.
Problem Areas
Alien commuters do not enjoy the full rights enjoyed by traditional
permanent residents. There are three major limitations:
* Time spent in "alien commuter" status does not count toward residence
requirements for naturalization purposes. 8 C.F.R. 211.5(C); 8 C.F.R. 316.5
(b)(3).
* Alien commuters may not petition for immigration benefits on behalf of
relatives. 8 C.F.R. 211.5 (c).
* INA 212(c) waivers (discretionary relief available to many permanent
residents who have a continuous, unrelinquished U.S. domicile of seven years
or more who have become excludable) are not available to alien commuters, as
they do not have the U.S. domicile required for such relief. Matter of
Garcia--Quintero, 15 I&N Dec. 244, (BIA 1975).
Procedural Considerations
Aliens in traditional LPR or SAW status may convert to commuter status and
"commence" residing in a foreign contiguous territory; however, there are no
rules or instructions regarding procedures to be followed in such cases. In
practice, an alien commuter surrenders the alien registration card at the
Port of Entry, along with Form I-90 application to Replace Alien
Registration Card, three ADIT-style photographs, and a letter from an
employer establishing qualifying regular and stable employment in the United
States. The alien must write in after Item 2.e of Form I-90 the following.
"I desire to become an alien commuter" (previous editions of Form I-90 had a
box marked "Other" in which the above was written in, but this has been
deleted from the current version). INS gives the alien a temporary card for
entry to the United States. A new alien registration card reflecting
"commuter" status is processed and sent to the alien in care of the U.S.
employer.
An alien entering the United States as a permanent resident for the first
time who desires commuter status presents the following to INS officials at
the border: the sealed visa envelope issued by the U.S. consulate, a letter
requesting commuter status, and a letter from a U.S. employer verifying
qualifying employment. The alien will be issued a Form I-551 coded to
reflect "commuter" status.
Alien commuters must satisfy the INS that, absent factors beyond their
control, they have not been unemployed in the United Sates for more than six
months at a time. To this end, every six months the INS requires proof of
regular and stable U.S. employment from those in commuter status. Often this
proof takes the form of a letter from a U.S. employer confirming continuing
employment. An "alien commuter" may challenge loss of permanent resident
status in exclusion proceedings.
An "alien commuter" may at any time abandon commuter status and take up
actual residence in the United States. To do so, the alien file form I-90 to
obtain a "green card" that is coded to reflect actual U.S. residence. 8
C.F.R.. 211.5(c); 8 C.F.R. 264.1(c)(2)(H). To become resident in the United
States, the alien commuter must establish a residence in the United States
and must have the intention to reside there permanently. Alien commuters
engaged in seasonal work will be presumed to have taken up U.S. residence if
they are present the United States for more than six months during any
twelve-month period.
Alien commuters are required to present a valid Form I-151, I-551, or I-688
at the time of each entry into the United States, but they are not required
to present an immigrant visa or passport after the initial entry. Aliens
must also present a properly endorsed and dated Form I-178, Commuter Status
Card, the document through which the INS monitors the date when the commuter
must again present evidence of regular and stable employment in the United
States. The I-178 Commuter Status Card is coded with the alien's "A" number
and is also numbered 1 through 12 to reflect the month in which the alien
must present evidence of regular and stable employment. It must be carried
at all times while the alien is in the United States.
As previously noted, an alien commuter is precluded from petitioning for
immigration benefits on behalf of relatives; however, if an alien originally
enters the United States as a commuter and later converts to traditional LPR
status, a qualifying spouse and children may follow to join. There is no
statutory time limit within which a spouse or child may follow to join the
principal alien. 9 Foreign Affairs Manual (FAM) 40.1, Note 7. Thus, if an
alien opts for commuter status upon original entry to the United States and
later abandons commuter status for regular permanent resident status,
qualifying derivative relatives may "follow to join" the principal alien in
the United States. Generally, to qualify as one following to join, the
relationship between the principal and the derivative relative must have
existed before the principal alien's original entry into the United States
as a permanent resident. Matter of G-, 7 I&N Dec 731 (BIA 1958); 9 FAM 40.1,
Notes 7.1, 7.2.-2. Should a spouse and children fail to qualify for status
under the following to join rule, a lawful permanent resident who has
abandoned commuter status and assumed residence in the United States may
file immigrant visa petitions for dependents subject to quota backlogs.
Answers to this and other similar  questions can be obtained free on Air
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I do not know how far the LD line reaches.
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