I am interested in finding out if there is
US income tax levied on individuals who have dual US /
Canadian citizenship and who are permanently residing and working in Canada .
If so, is the tax a flat tax (what would the % be?) or is it
progressive based on one’s income? If it is progressive, can you tell me what
the income brackets and the associated
levels of taxation would be?
Would having a US bank account, 401K, Roth
IRA and US credit cards have tax implications for an individual in
the scenario outlined above?
What would be your fee to advise me of the above?
Thank
you, --------------------------------------- david ingram
replies:
Any US citizen or green card holder living in Canada
must continue to file US tax returns as long as they remain a US citizen.
It does not matter if that US citizen is living in Ethiopia, Saudi Arabia,
Greece or Australia either. US citizens and green card holders must file
US tax returns no matter where they live or no matter where the money comes
from.
go to www.centa.com and read the Oct 93 newsletter on
Dual citizenship and the Oct 1995 newsletter on what A US CITIZEN LIVING IN
CANADA MUST DO.
THESE TWO NEWSLETTERS can be found int eh top left hand
box.
I charge $450.00 for this type of consultation in person
or by phone. If you are in the US during a phone consult, there is no
GST. If in Canada, it becomes $472.50.
-------------------------- The following is a reprint
from my 1991 Ultimate Tax Book. Although rates will be a little different,
the method is the same.
Whether your particular venture fails
or succeeds, it is still your name that appears at the
bottom line of the contract, and it is you and not your
consultant that will succeed or fail with the venture.
It is your duty to yourself to take the time to bother with
your business affairs. It is your duty to yourself to
investigate any possible investment, and to realize that if
you act hastily you may be robbed in the same way as Aunt
Gertrude, who keeps wondering why her 3% guaranteed perpetual
bonds are not keeping up with inflation. - david ingram
Canadian Taxes, U.S. Taxes, Visas and Immigration,
British Columbia
Income Tax, Real Estate
To Reside or Not
(THE TAXING
QUESTION)
excerpt
from
david
ingram's BORDER BOOK Jan 20,
2001
IT ISN'T ALWAYS YOUR DECISION GOVERNMENT(S) DECIDE FOR
YOU!
"WATCH
OUT!!!"
AMERICAN
CITIZENS LIVING IN CANADA (or any other
country)
Every U.S. citizen or "green card"
holder living out of the U.S. (i.e., in Canada) must continue to
file U.S. income tax, gift and estate tax returns. They may exempt
up to $72,000 U.S. of "earned" income, but if they have more than
$72,000 of earnings or any amount of interest, dividends, rents,
royalties,or pensions, they must file a U.S.
income tax return and use a form 1116 (foreign tax credit) to claim
credit for the taxes paid to Great Britain or Canada or Iceland, or
Libya, or Borneo. (Note that the $72,000 figure was $70,000 prior to
1998).
CANADIANS OUT OF CANADA
This is a very important
matter.In our US "working visa" practice, we
counsel our clients on their US and Canadian tax liabilities when
they are going to work in the USA.We find that
most (certainly 95%) of the Canadians who get US working visas are
given incorrect or at least incomplete advice about their US tax
liabilities.For instance, a North Vancouver
company sent over 200 employees to the US on TC and TN
visas.The individual employees were being paid
from Canada and were all filing Canadian returns and not paying tax
to the USA where their first liability was when they were performing
the service in the USA.
US taxation is based upon where you perform
the work.Where you "claim" to work is not
important.Now, if you work in California and
live in Vancouver with your spouse and children and earn LESS than
$10,000 US, there will likely be no US FEDERAL tax liability because
of the US / Canada Income Tax Treaty.However,
there WILL be a California income tax liability.
This chapter was new for the seventeenth
(1990) edition of my Canadian Income Tax Preparation book. It came
up because of the number of clients I have who are "out of the
country." At any moment, I have over 500 clients who are Canadians
living in Barbados, Fiji, Australia, New Zealand, New Guinea, Hong
Kong, Saudi Arabia, Kuwait, France, Brussels, and another 50
countries. As well, they live in at least 20 of the U.S. states such
as California, Alaska, New York, West Virginia, Nevada, Hawaii,
Florida, North Carolina, Tennessee, Washington, Virginia, and
Arizona.Note that some states have no (or
limited) state income tax. Alaska, Florida, Nevada, South Dakota,
Texas, Washington, and Wyoming have no state tax.Tennessee has tax on interest and dividends only.New Hampshire taxes proprietorship business
income.And, by the time you read this, there
will be changes.North Carolina, for instance is
making noises about getting rid of its intangible personal property
tax (tax on receivables, etc. - yuk).
Then, of course there are those who live and
work on deep sea oil drilling platforms, or work as sailors on Great
Lakes freighters (one such fellow sailed betweenor Air Crew on Qantas, Canadian Airlines International, Air
Canada, BOAC, LIAT, etc., and based in Amsterdam, Sydney, Honolulu,
Seattle, or Auckland, New Zealand).
And I shouldn't forget people who live in
the United States and have property in Canada which they rent out or
have made an investment in a brother's Canadian business or a
Canadian ski (or even "all season" resort).
Some of our clients have Xmas tree farms in
Northfield, Minnesota, orange groves in Florida, and almond
plantations in California.Others are Finish
citizens who live in Germany and work part of the year in the U.S.
and part of the year in Canada. My favourite client (sorry everyone
else) is likely a U.S. citizen with a wife in North Vancouver and
businesses in the Philippines, New Zealand and Washington
State.On his last visit, he brought his 84 year
old American mother from Seattle.Wife, mother
and client were flying off to Manilla the next day and mother was
worried because the Sears store at Capilano mall had turned down her
Gold Visa Card. "What was she going to do for money on her
trip?"A call to her trust officer in Seattle
ascertained that her card was okay and NO AUTHORIZATION HAD BEEN
ASKED FOR BY SEARS. We had no trouble getting an approval through
our own VISA account, so it must have been the SEARS computer
system. However, this dynamic lady, who had $800,000 U.S. on deposit
in her accounts, was embarrassed and distraught, and it will be a
long time before she shops at SEARS again.
Then there are the soccer players, the
hockey players, the basketball players, the seminar
presenters,the Hollywood actors, the Ice Capades
skaters, and the odd South American or European or Iranian refugee
and the question always arises, "who is going to tax them?" In the
case of a Hockey player like Wayne Gretzky, he has to file a "state"
tax return in every state in which he played hockey or makes a
personal appearance, likely about 22 states.
Canadians usually compare their combined
federal and provincial taxes to the basic federal U.S. taxes without
thinking about the state taxes and extra medical costs. Although
some states have NO personal income tax, most do."Some" (there are over 6,000 current forms) forms and
information are given here:
StateTax form Number
Alabama40
Alaska
*No personal state income tax form
(estate /corp yes)
Arizona
*140
Arkansas
*1000
California
*540
Colorado
*140
Connecticut
*CT-1040
District of
ColumbiaD-40
Delaware200-01
Florida
*No income tax (is tangible personal property /
estate / corptax)
Georgia
*500
Hawaii
*N-12
Idaho
*40
Illinois
*IL-1040
Indiana
*IT-40
Iowa1040
Kansas
*40
Kentucky
*740
Louisiana
*IT540
Maine1040ME
Maryland
*502 plus city and county
taxes
Massachusetts
*1
Michigan
*MI-1040 plus 12 city tax
returns
Minnesota
*M-1
Mississippi
*62-101
Missouri
*M)-1040
Montana
*2
Nebraska
*1040N
Nevada *No state income tax (is a $25 / employee
business return)
New Hampshire
*1040 for business
proprietorship only
New Jersey
*1040
New Mexico
*PIT-1
New York
*IT-201 plus New York City / Yonkers city
returns
North Carolina
*D-400
North Dakota
*37
Ohio
*IT-1040
Oklahoma
*511
Oregon
*40N
Pennsylvania
*PA40R plus Philadelphia city
return
Puerto
RicoNo individual income tax
return
Rhode
IslandRI-1040
South Carolina
*SC1040
South
DakotaNo Individual income tax return
Tennessee
*RV-0368 - only interests and dividends
included
Virgin
IslandsNo personal, corp, estate,
income taxes
Virginia
*760
Washington
*No personal income tax (estate/personal
prop / yes)
West Virginia
*IT-140
Wisconsin
*1
Wyoming
*No personal, corporation or
estate taxes
(*) denotes we have recently prepared
returns involving this state)
Note that state income taxes range from none
to a high of about 10% in California.
The personal property taxes are important as
well.In the state of Washington, for instance,
you can easily get a retroactive $5,000 personal property tax bill
on the boat you have kept there for the last 4 or 5
years.Licensing your new Cadillac in the state
of Washington will cost you an extra $600 a year in personal
property taxes.
"WATCH OUT BORDER
WORKERS"
It used to be that people who lived in the
United States and worked in Canada paid no tax to the U.S. because
the higher Canadian income tax meant that the U.S. resident got
credit for every cent by filing the Form 1116 and claiming a foreign
tax credit. That is no longer true if the total income (after the
"up to" $72,000 exemption) is over $45,000 for a family or $33,750
for an individual or $22,500 for a married person filing separately.
The Alternative Minimum Tax (Form 6251) means that only 90% of the
foreign tax credit can be claimed. (Note, AMT kicked in at $40,000,
$30,000 and $20,000 from 1987 to 1993 - It is now $22,500, $33,375,
and $45,000 for 1994, 1995,1996, 1997 and
1998).
If you are a U.S. citizen who has not filed
your past returns, you should catch up your returns from 1987 to the
present.We regularly prepare 1987 to 1998
returns for U.S. citizens who have been "caught" or who are just
trying to catch up legitimately.
For example, in a 1990 return for a man
earning $70,000 in Canada and a woman earning $10,000 in the U.S.,
their Alternative Minimum Tax worked out to about $500.00 U.S.
However, if she had made $20,000 in the U.S., there would have been
enough U.S. Tax paid that the Alternative Minimum Tax would not have
kicked in. Since the 1991 rate for the AMT is going from 21% to 24%,
it is expected to more than triple the number of people who will be
caught in this situation. Persons in this situation should plan on
making sure that they have some U.S. income to knock out the AMT in
the U.S. In the above case, I had prepared the return and sent it
in, before another return pointed out to me that there was a tax
liability under AMT and I had to phone the couple and say "mea
culpa".
Note that the AMT is 26% for 1993 and 1994,
1995, 1996, 1997, 1998, and 1999.
WHERE DO THEY LIVE?
What country is going to tax them?
The answer is not always easy. I am going to
quote directly from the U.S. / Canada Tax Treaty because that is the
one we use most often, but the same general rules apply with all
treaty countries. At the moment, Canada has signed treaties with 78
countries and is working on another 27. We have had several cases
where people have already paid $16,000 or $25,000 in tax to Canada
because they are clearly residents under most meanings. However,
because of the following "TIE BREAKER" rules, we are getting back
all tax paid on dollars earned in the other country.
CANADA /
UNITED STATES INCOME TAX TREATY 1980
There are many, many treaties.The articles tend to be fairly consistent so that when some
one comes in from Indonesia, I am able to quote Articles IV, IX, X,
and XI etc., and look like a real expert on Indonesia, even if I
have not looked at it before.The following
ARTICLE IV for instance has been used by myself more often for
Australia and Germany than for the United States.
Please also note that a NEW US / CANADA
TREATY was signed on August 31, 1994 and with various changes took
effect on Jan 1, 1996. Parts of it (estate and capital gains) are
retroactive back to November 10, 1988.This new
Treaty totally changes the rules between the two countries for
estate and capital gains tax upon death. It also completely changes
the rules for the taxation of U.S. Social Security, Canadian Old Age
Pension and Canada Pension Plan. Gambling losses are going to be
allowed for Canadians as well.See the December
1995 edition of the CEN-TAPEDE for more information.
The "boxed" parts of the following treaty
following are the parts taken out as ofJanuary
1, 1996.The treaty as printed is as it should be
now. It was slightly different 1980 to 1995.
Article IV - Fiscal Domicile - (it is the
same number in most treaties)
1980 to 1995. For the purposes of this
Convention, the term "resident of a Contracting State" means any
person who, under the law of that State, is liable to taxation
therein by reason of his domicile, residence, place of management,
or any other criterion of a similar nature. But this term does not
include any person who is liable to tax in that Contracting State in
respect only of income from sources therein.
1996, 1997, 1998 & 1999. For the
purposes of this Convention, the term "resident of a Contracting
State" means any person who, under the law of that State, is liable
to taxation therein by reason of that person's domicile, residence,
citizenship, place of management, place of incorporation or any
other criterion of a similar nature, but in the case of an estate or
trust, only to the extent that income derived by the estate or trust
is liable to tax in that State, either in its hands or in the hands
of its beneficiaries. For the purposes of this paragraph, a person
who is not a resident of Canada under this paragraph and who is a
United States citizen or alien admitted to the United States for
permanent residence (a "green card" holder) is a resident of the
United States only if the individual has a substantial presence,
permanent home or habitual abode in the United states and that
individual's personal and economic relations are closer to the
United states than any other third State.The
term "resident" of a Contracting State is understood to
include:
(a) the Government of that State or a
political subdivision or local authority thereof or any agency or
instrumentality of any such government, subdivision or authority,
and
(b)(i) A trust, organization
or other arrangement that is operated exclusively to administer or
provide pension, retirement or employee benefits, and
