Leaving Quebec and Canada for Florida and the US -

QUESTION: Thank you for creating such an informative and insightful website!
My husband and I are both Canadian citizens and have been working in the US
for more than a year on a TN visa. We worked more than a 183 days a year in
Florida, we own a condo which we call home and file our income taxes in the
US. In Quebec, we also own a condo which we are renting out through an
agency (third party) and we still hold our Quebec driver's license and
medical insurance card, although we have not used any of these governement
services while we were out of the country.Finally, we are also repaying our
RRSP for the First time home buyer's program and hold a bank account in
Canada to pay our mortgage for the condo we are renting and are repaying my
quebec student loan.  Question: Can we be considered 'Deemed Non-Residents'
rather than 'Factual Residents' of Quebec/Canada for tax purposes? Is there
some way for us to pay our work income tax only to the US?
david ingram replies:
The good news is that your wages are only taxable in Florida under Article
IV of the US / Canada Income tax treaty as described.
However, you should immediately give up your Quebec medical (it was
officially dead after 90 days anyway even if you still have a card and even
if you are still paying the premium.
THE BAD NEWS is that when you leave the country as you have done, the RRSP
Home Buyer's Plan is either taxable on your leaving Canada returns or you
have to repay the money.  I usually advise you to pay the tax if the over
all income is less than $35,000.
On the final Canadian return you must file forms T1161. .
Since the condo in Canada is rented, you must file another Canadian return
each to report the rental income and expenses only.  This is called a
section 216(4) return and is due by June 30 of the following year, i.e. June
30 2006 for the 2005 year.
We would be glad to look after the Quebec, Federal and US returns for you in
this difficult transition year (and any others of course).
This previous question may help you as well.
When we left Canada in early 2001, our accountant didn't ask us to fill up
T1161 as it wasn't in circulation then.  I did some research on the forms
used in 2001 and it wasn't there.  It appeared in 2002/2003.
We did dispose of our property and some investments.
Will this be an issue if we come back?
Thanks for your input.
david ingram replies:
Departure tax rules have existed in Canada since July 17, 1971. Before the
formal T1161, you just listed the items in a free form manner. However, your
research is incorrect.
The form T1161 was originally issued in draft form in about Oct 1996 along
with new regulations which added other items for reporting.  For instance,
up to Oct 1996, no departure tax had to be calculated on the value of shares
of a private CCPC (Canadian controlled Private Corporation).
There is a certain analogy to the US form 8861 for reporting RRSP accounts -
we knew the form was coming for over a year - then we had a draft form for 6
months - and then the full fledged form - however, the rules for reporting
were originally made in 1989 and the requirements to report Canadian RRSPs
to the US Government was handled with free flow designed reporting rules
according to US REV-PROC 1989-45 which was modified by REV-PROC 2002-23 in
April and then codified with form 8891 in 2004
http://www.irs.gov/pub/irs-pdf/f8891.pdf). At all times there were big
penalties for failing to report a Canadian RRSP.  The current penalty is 35%
of the amount contributed to the Canadian RRSP plus 5% a year for every year
that the RRSP is not reported.  This would apply to you as well if you have
left a Canadian RRSP behind.  Then of course, you need to report your
Canadian RRSP accounts and any other Canadian financial accounts on form T
DF-90.21 (see bottom of Schedule B of your 1040) and the failure to report
the financial accounts (to the department of the Treasury in Detroit)
carries a penalty of up to $500,000 PLUS 5 years in jail.  At this point in
time, I have never seen anyone penalized with the 5% a year for an RRSP
account but I have seen several $10,000 penalties for failing to report the
accounts to Treasury including one 105 year old lady with a $10,000 fine for
failing to report a $38,000 bank account at the Royal Bank of Canada in
Edgemont Village in North Vancouver, and a 68 year old Arizona lady with a
$60,000 fine for failing to report over $500,000 in Canadian RRSP's. Note
that the $60,000 fine was not the 5% a year, it was for failing to report
the existence of Canadian financial accounts.
Back to Canada - By similar rules, departure tax clearly existed before the
T1161 was issued and was to be reported in writing without a specific form.
If you have disposed of assets affected by form T1161, you should do some
amending and be prepared to pay the proper tax to Canada.  When you do so,
the US government will issue you a federal foreign tax credit and a refund
for up to ten years.
I cannot guarantee that it will be an issue on your return. At the moment,
the CRA is not doing a good job of catching people on these items. I doubt
if the CRA is catching 2%.  However, the intention is to get them all so i
think you should correct the situation to stay clean.
Unfortunately, the CRA can go easily go back eight years if they feel that
you have wilfully evaded the situation and obviously, since you now know
about it, your failure to fix it would be wilful evasion.
Your accountant was clearly incorrect in not calculating a departure tax or
at least taking it into consideration on your departure.  Remember that
there is no departure tax to be paid on small amounts.  The only time it is
necessary to provide security is when the federal tax exceeds the guidelines
to be found on form T1243
(http://www.cra-arc.gc.ca/E/pbg/tf/t1243/t1243-04e.pdf) and T1244
(http://www.cra-arc.gc.ca/E/pbg/tf/t1244/t1244-04e.pdf  $12,107.50 for
Quebec and $14,500 Fed tax for former residents of all other provinces)
Answers to this and other similar  questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show
Those outside of the Lower Mainland will be able to listen on the internet
www.600AM.com <http://www.600am.com/>
Call (604) 280-0600 to have your question answered.  BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
Home office at:
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Cell (604) 657-8451 -
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email to taxman at centa.com <mailto:taxman at centa.com>
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