My_question_is: Applicable to both US and Canada
Subject: BIG difference in taxation levels
Expert: taxman at centa.com
Date: Thursday May 05, 2005
Time: 08:23 AM -0700
QUESTION:
I have a client who has moved here from the US part way through 2003. WHen
he completed the US and Canadian tax returns for 2003, there wasn't too big
a discrepancy, presumably because he was only in Canada for part of the
year. However, 2004 was a full year and his tax returns show a troubling
difference. The facts are as follows:
Male age 61, retired with a pension of about $50,000 US $ from the public
sector in Michigan. married to a stay at home mother, aged 54. They have two
children at home age 13 and 7. As a US citizen, he files a 1040 . He
completes the 1040 as a married filing joint. He enjoys 4 exemptions ($3,100
each = $12,400). He claims the standard deduction of $9,700, leaving him
with taxable US income of about $27,000. His pension is exempt from tax in
Michigan (so he tells me)and he also receives $2,000 in child tax credits.
Therefore, hi total US tax is about $1,300. In Canada, he shows income of
about $63,000. He receives the basic exemption and the spousal credit and
the $1,000 pension credit. He also receives a US tax credit for the tax he
owes to USA. Despite that he is left owing $11,500 to Canada for the
privilege of living here. Does this sound right to you? He is ready to sell
his house and move back to USA unless we can find some way to reduce this
discrepancy, as it seems that it is not a one-time thing. As long as he has
the children at home that he can claim as exemptions and tax credits it is
going to make his US tax very low, is it not? Your thoughts would be
appreciated.
===================================================================
david ingram replies:
This is a great example of a basic difference between Canada and the USA.
You have not taken the Canadian Child Tax Benefit into account but the fact
is that the joint tax return has saved him some serious money and he is not
paying or calculating a State tax bill either.
The children give him another big boost that is not seen in Canada because
we took away the deduction and increased the child tax benefit.
It is not a one-time thing. He owes the tax. However, if he had a medical
problem, he would not be so quick to move back unless his state pension is
also providing him with full medical in the USA.
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