Director's Fees paid to USA

Sent: Thursday, November 30, 2006 12:12 AM
To: taxman at centa.com
Subject: Director's Fees
David,
My wife is a Director of a family-owned business in
Canada. She attends meeting(s) in Canada and earns
"Director's Fee" income (T4 slip issued by company)
every year.
Though she is a resident of USA, she submits an annual
Canadian tax return paying taxes due and declaring
that this is her only worldwide income (Schedule A),
which it is.
For the US taxes, she declares this income as
Self-Employment income and also submits Form 1116 for
taxes paid in Canada.
Last year (2005) things changed on the Canadian side:
1) CRA now charges a Surtax on Non-Residents of 48% of
tax due!! (Schedule 1).
2) In the past, she has submitted Alberta taxes (where
the income was earned) and paid those according to the
calculated value. But this year, the CRA overruled the
submitted tax return and re-calculated with NO Alberta
tax (to her benefit of course).
My question is: Do we or do we not pay Alberta tax
based on this situation??
Thanks for your email list service!!!!
===============================================
david ingram replies:
If she living in the US and was flying for Air Canada as an employee from
Vancouver to Ottawa and back in this following flight plan, her tax would be
calculated as follows in a multi-jurisdictional tax calculation.
Flies Vancouver to Calgary - 	One half of this flight credited to BC other
half to Alberta
Calgary to Toronto		One half to Alberta and the other half to Ontario
Toronto to Ottawa			All this flight credited to Ontario
Ottawa to Toronto			all flight credited to Ontario
Toronto to Chicago		about 5% to Ontario, the balance to USA
Chicago to Calgary		about 5% to Alberta, the balance to USA
Calgary to Vancouver		one half to Alberta, one half to BC
Using the CRA logic in this calculation, there is no doubt that a
non-resident of Canada owes the tax to the province where the services were
performed.
This answer was based upon your statement that a T4 slip (employee status)
was issued.
If in fact, it was a T4A (self employed) than she might not owe any tax to
Canada under the terms of Article XIV of the US/Canada Income Tax Treaty as
she has no fixed base of operations in Canada. If she has a fixed base, then
she should be paying tax to Alberta and the Feds.
--------------
File it as an Alberta return.  If the CRA wants to change it, let them.  It
is easier than spending any time or money to make them consistent in their
assessing.  In other words, this drives me crazy because they never do two
alike and the persecution of some 400 CAIL and AIR CANADA employees by
making them file these silly returns is just a lot of make work.
You can see my own frustration here. However, it is not worth your spending
any time on it.  One time when it happened with one of my clients with
regard to BC, I wrote a letter to Premier Campbell (whom I know reasonably
well) and the Minister of Finance at the time.  The letter pointed out that
the province was losing money.  I did not receive a reply from either of
them on what "I" thought was an important matter.
However, you may have another problem.   If your wife owns 5% or more of
this family business, she has to file US form 5471 for the company.  Failure
to file can have penalties of up to $500,000 plus 5 years in jail. the
following old Q & A explains it a bit
---------------------------
  taxman at centa.com: Please see bottom of message if you wish to unsubscribe.
If you are new to the list, you were probably added because you sent a
question to taxman at centa.com, posted a question online at www.centa.com or
possibly at www.jurock.com
------------------------------------------
My_question_is: Applicable to both US and Canada
Subject:        IRS 5471
Expert:         taxman at centa.com
Date:           Tuesday November 22, 2005
Time:           06:07 PM -0800
QUESTION:
I hold dual US and Canadian citizenship, and I work as a consultant in the
Information Technology field.
In April of this year, I incorporated in order to limit risk in the event of
a lawsuit related to errors and omissions, and to have greater access to
consulting contract - many clients require incorporation to avoid WCB, CP,
and OAP liabilities in the event that CCRA deems me to be an employee of the
Client etc.
As far as I can tell, I am a Category 2 filer of IRS form 5471, as I am the
sole shareholder and president of my incorporated Company. The question I
have is whether I should be drawing a salary (Earned Income) or receiving
Dividend Income from the Company, for my role as President? In other words,
which approach would yield a lower combined (US Personal + Canadian Personal
+ Canadian Corporate) tax liability?
============================================================================
==
david ingram replies:
I have not done the calculation for a while but the last time I did it,
taking a $40,000 salary and the rest in dividends "increased" the overall
tax by about 1/2% when you added the corporate and personal tax together.
In addition, a salary of up to $80,000 US is exempted under US law and as of
2005 does not affect the AMT calculation.  On the other hand, the dividends
or retained earnings become taxable and require 116 forms to be filed.
You have to do the specific calculations to get your answer.
I know why you have the Cdn Corporation but you have lost the benefits of a
proprietorship.
With a corporation, it is extremely difficult to make your personal mortgage
deductible.
Try reading the November 2001 newsletter in the top left hand box at
www.centa.com
============================
For the purposes of the 5471, it is 1000 times easier to do the form if you
have paid all the profit to your self or you and your spouse as a salary
leaving zeros for the 5471 calculations.
============================
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 regular
guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS
YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
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.
Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one
of 17 different financial seminars in the boardroom of his office
Time:    7:00 to 9:30 PM
Date:    Every Thursday evening
Place    1764 West Seventh
             Vancouver (corner of Burrard)
Phone (604) 731-8900 to register
No cost - no obligation
Topics always cover mortgage interest as a deduction
other topics - getting the mortgage, estate planning, critical care
insurance, income taxation, differences between stocks and bonds, and
usually the most innovative HELOC mortgage offered in Canada from Manulife
Bank
If you are starting in downtown Vancouver and do not want to go home first,
one of the excellent THAI HOUSE restaurants is in the same building and
makes a nice start to the evening.
I, david ingram, manage to make three out of 4 of them to cover mortgage
interest as a deduction and give the class an adding test.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
Home office at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 10 PM 7 days a week (please do not fax or phone
outside of those hours as this is a home office)
email to taxman at centa.com <mailto:taxman at centa.com>
www.centa.com <http://www.centa.com/>  www.david-ingram.com
<http://www.david-ingram.com/>
Disclaimer:  This question has been answered without detailed information or
consultation and is to be regarded only as general comment.   Nothing in
this message is or should be construed as advice in any particular
circumstances. No contract exists between the reader and the author and any
and all non-contractual duties are expressly denied. All readers should
obtain formal advice from a competent and appropriately qualified legal
practitioner or tax specialist in connection with personal or business
affairs such as at www.centa.com <http://www.centa.com> . If you forward
this message, this disclaimer must be included."
Be ALERT,  the world needs more "lerts"
This from "ask an income tax and immigration expert" from www.centa.com
<http://www.centa.com/>  or www.jurock.com <http://www.jurock.com/>  or
www.featureweb.com <http://www.featureweb.com/> . David Ingram deals on a
daily basis with expatriate tax returns with:
multi jurisdictional cross and trans border expatriate problems  for the
United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai,
Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France,
Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia,
Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran,
India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba,
Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK,
GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas,
San Antonio Houston
Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration
Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant
Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax
specialist expert preparer expatriate anti money laundering money seasoning
FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions
Grand Cayman Aruba
Alaska,  Alabama,  Arkansas,  Arizona,
California,  Colorado, Connecticut,
Delaware, District of Columbia,  Florida,
Garland, Georgia,  Hawaii,  Idaho,  Illinois,
Indiana,  Iowa,  Kansas,  Kentucky,
Louisiana,  Maine,  Maryland,
Massachusetts, Michigan, Minnesota,
Mississippi,  Missouri,  Montana,  Nebraska,
Nevada, New Hampshire,  New Jersey,
New Mexico, New York, North Carolina,
North Dakota,  Ohio,  Oklahoma,  Oregon.
Pennsylvania,  Rhode Island,  Rockwall,
South Carolina, South Dakota, Tennessee,
Texas,  Utah, Vermont,  Virginia,
West Virginia, Wisconsin, Wyoming,
British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, Quebec City,
New Brunswick, Prince Edward Island,
Nova Scotia, Newfoundland, Yukon and
Northwest and Nunavit Territories,
Mount Vernon, Eumenclaw, Coos Bay
and Dallas Houston Rockwall Garland
Texas  Taxman and Tax Guru  and wizzard
wizard - consultant - expert - advisor -advisors consultants - gurus - Paris
Prague Moscow Berlin
Lima Rio de Janeiro, Santaigo
New York, Boston, Sacramento, Minneapolis, Salem, Wheeling, Philadelphia,
Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg, Naples, Fort Myers,
Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay,
Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton,
Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego,
Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa,
Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham,
Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence,
Houston, Albany, Framingham, Cambridge, London, Paris, Prince George, Prince
Rupert, Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon,
Madrid, Atlanta, Myrtle Beach, Key West, Cape Coral, Fort Meyers,   Berlin,
Hamburg
Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing,
Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds,
Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson,
Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey, Edinburgh,
Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo,
Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto,
Nanking, Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish,
Churchill, Lima, Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton,
Kelowna, Vernon, Fort MacLeod, Deer Lodge, Springfield, St Louis, Centralia,
Bradford, Stratford on Avon, Niagara Falls, Atlin, Fort Nelson, Fort St
James, Red Deer, Drumheller, Fortune, Red Bank, Marystown, Cape Spears,
Truro, Charlottetown, Summerside, Niagara Falls, Albany STAR WARS
ask international non-resident income tax expert preparation & immigration
consultant david ingram, experts on rentals mutual funds  RRSP RESP IRA
401(K) & divorce CKBD 600AM 9 AM Sunday on Fred Snyder's IT's YOUR MONEY

Comments (0)


CEN-TA Cross Border Services - Tax, Visas, Immigration
http://www.centa.com/article.php/UsCaWeekofMon20061127002993.html