Canada-US Tax Treaty for Canadian Diplomats abroad -

Date:           Tuesday April 10, 2007
Time:           04:53 PM -0400
Hi David,
I am a Canadian Citizen working for the Canadian Consulate as a Locally Engaged Staff with an A2 Visa.  I am married to a U.S. Citizen and own a home.  I was determined to be a Deemed Resident of Canada and pay Canadian Taxes.
Do I have to file U.S. Fed or State returns?  Although I was under the impression my income is exempt from U.S. tax under article XIX of the Canada-U.S. Tax Treaty, someone mentioned I have to pay State Tax.  Is this true?  If so, isn't this double taxation?
Appreciate the guidance.
david ingram replies:
In my opinion, as a matter of courtesy, the Canadian diplomat should report their world income to the US government and exempt it on the return under Article XIX of the US Canada Income Tax Convention (1980) (We usually call it a Treaty but it is technically called and named a 'Convention').  If you read your handbook, you will see that rental houses and other invest,ment income in the US 'IS' taxable.
In your case, it is to your families advantage for you to file a joint US return with your spouse and if you have not done so for 2003, 4 and 5, you should file a 1040X quickly to do so because the joint income tax rate will result in less tax for your US spouse if they are working.
All states but California honor the Treaty.  In California, one would pay tax and then claim it as a foeign tax credit on their Canadian return.
This actually was given the following reply but I pulled it out in a weak moment and then took 10 days to get to it.
David Ingram wrote:
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In fact, likely no replies until May 5th or so when I hope to come up for air.  If it IS important, you can book a phone consultation as described below. 
david ingram replies:
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This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,000 would be the same with one rental 
$1,200 would be the same with one business no rental
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out 
$1,600 would be for income from two countries  for two  people 
$2,800 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
Just a guideline not etched in stone. 
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