IRA for Canadian resident -

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david ingram replies:

That is what I/we do.  I charge $450 an hour for that sort of consulting.

However, you will get an idea of what you have to do by reading my October, 1995 newsletter at www.centa.com in the top left box.  You will learn even more by reading the US/Canada Taxation section in the second box down on the right hand side.

If you feel you need an appointment or want specific calculations, I would be glad to help.

The following will give you an idea of some of the comparisons. 
You may be surprised to see that Canada has a favourable rate today.  If the Bush tax cuts are turned back, we will look even better.

QUESTION:

Hello,
My wife and I (both US citizens) are considering moving to 
Vancouver.  I'm a xxxxxxxx, telecommuting for a start-up company (Delaware company with 
its office in New York City).  And I'm trying to start a new career as a screenwriter/cameraman/director.

I'm trying to make a general comparison of the taxes we'd 
pay as residents of Seattle, or Portland, OR, or Vancouver.  
We believe Vancouver would be the best fit, but we're 
concerned about Canadian taxes.

Current salary through the company is $62,500 (US).  
Other interest income from U.S. accounts totals about 
$23,000 per year (US).

Can you give me a basic summary of what I might expect 
as U.S. versus Canadian (federal/provincial/city) taxes to 
expect?

Also, if the start-up is successful, it may mean a buy-out 
in two or more years.  Through annual stock options, my 
portion could mean value of seven figures.  Any obvious 
considerations in that regard.

Great website! I'm subscribing to the newsletter, and have 
no doubt where I'm coming for my tax help if we end up 
in Vancouver.

Thanks very much,
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david ingram replies:

It is tax season and I am too busy to do this what-if.  Maybe if you send it back in July, it might get into the free list.

in the meantime, this older question might help.  BC has slightly lower taxes than Ontario.

Washington State has no State income tax and is generally lower than BC.

Oregon has a state income tax and but no state sales tax.  Washington and Oregon both cheaper overall tax than Michigan.


On my opinion, the career of screenwriter cameraman director is a tough one in Vancouver at the moment.  Vancouver has a lot of those people out of work at the moment because of the 40% drop in the value of the US dollar.

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david ingram replies:

You really require someone to do the calculations for you and your family.

We would charge in the $400 range to do that for you.

In he meantime, the following which I did answer in November might give you an idea.

In your case, because all the income is in your name, tax will be significantly higher in Canada because you will be paying on one income and you will be paying Ontario Tax while coming from essentially tax free Tennessee

On the other hand, medical insurance will be significantly lower.


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David,

 

I am a U.S. citizen and resident, married to a (non-working) dual U.S.-Canadian citizen. I recently learned that the company where I've worked for the last 20+ years is closing its doors near the end of this year. I'm 55 and can't get my pension for at least 5 years...10 years if I want a full pension. We've been thinking of the idea of moving across the border to Canada (wife would sponsor me), and I have a question. Would it make any sense tax-wise for me to live and work in Canada, pay into CPP for 5 or 10 years? I understand that Canadian taxes are higher than in Michigan, and I have mutual funds and other savings that are generating about $10,000 in yearly interest/dividends/capital gains that I would be leaving in the U.S.

 

Thanks,

 

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david ingram replies:

As an esoteric exercise, I decided to see what the difference actually was because Canadian taxes are NOT always higher than the US, particularly where two spouses have equal earnings. 

The big difference is that the US has a joint tax return rate and when one spouse works an the other does not, a discrepancy does arise.

I used a US salary of $60,000 and a joint 1040 and MI 1040.

I did not use any deductions other than the standard deduction and did not claim for any children.

The results were

US fed tax of    5.714
MI tax of          2,083
FICA                3,720
Medicare             870           
For a total of   12,387      which converts to $14,048.02 in Canadian funds
If you had lived in Detroit, the city tax would be $1,470 changing the figures to
a total of  $13,857.00 US or $15,715.14 Canadian

I converted the $60,000 to $68,045.62 Canadian

The results were
Cdn Fed tax of   9,581.69
ON tax of          4,659.14
CPP of              1,910.70
EI of                    729.30
for a total of     16,880.83 which converts to $14,884.86 in US funds

The difference is $2,497.86 or about $200 a month. if you did not move from a Michigan city with a tax return or a difference of (14,884.86 - 13,857) $1,027.86 if you moved from Detroit

Then - (I was intrigued) I tried it with you both receiving $30,000 US


The results were

US fed tax of    5.714
MI tax of          2,083
FICA                3,720
Medicare             870           
For a total of   12,387      which converts to $14,048.02 in Canadian funds
and $1,470 Detroit tax 'IF'  There is no change

Then I decided to show what would happen to a couple who moved to Canada and both worked equally.

I converted the $60,000 to $68,045.62 Canadian but split it into 2 returns of $34,022.81

The results were
Cdn Fed tax of   3,474.97 x's 2 or   6,949.94
ON tax of          1,721.67  x's 2 or  3,443.34
CPP of              1,510.88 x's 2  or  3,021.76
EI of                    636.23 x's 2 or   1,272 .45
for a total of     14,687.49 which converts to $12,950.86 in US funds

and is only a difference of  12,950.86 - 12,387 or  $563.86  or less than $50.00 a month AND  qualifies your wife for her own CPP.

Of course, if you moved from Detroit to Windsor, you would be paying ($13,857 - 12,950.86)  $906.14 LESS living in Canada.

For the record, I would normally charge a minimum of $400 Cdn for this 'what if' calculation and your question was rejected originally along with another 100 or so.  However, it caught my eye and I decided to use it as a major answer. 

The investment part of your income will also cause some differences because Canada will tax the dividends and capital gains differently, likely a little more.  However, if you switched your accounts to Canadian securities, the tax may be a little less because of Canada's dividend tax credit.

Hope this helps a bit.