Dear Sirs,
I am desperately searching for a solution to my
somewhat unique tax situation. I am a U.S. citizen,
but I reside in Canada with my family. Most of my
income is physically earned in the U.S. I am a
computer software consultant and earn approximately
$140K USD/year. My wife currently only has a small
amount of earned income, but may go back to work
shortly. I currently utilize a foreign tax credit of
U.S. income tax paid as a write-off on my Canadian tax
return. Even so, I am paying approximately an
additional $25K CAD to Canada each year above what I
owe to the U.S. I am currently a W-2 employee of a
company, but they are willing to pay me as a
subcontractor on a corp-to-corp basis. I am looking
for someone to help me identify and establish what tax
structure (U.S. corp, CAD corp, etc.) would be
beneficial to set up to reduce my overall tax
liability. Ideally I would like to keep as much of
the retirement assets in the U.S. as possible since I
plan to relocate back to the states prior to
retirement and that is where the majority of our
portfolio currently exists.
I have done quite a bit of research into the issue of
setting up a corporate retirement plan. It appears
that the employer contributions to a 401k plan are not
taxed in Canada, as these are never passed to the
employee. However, the elective employee
contributions are taxed in Canada. Ideally, I would
have a corporation that contributes to the 401k from
the employer side only -- to reduce the amount of
taxable income in Canada. However, I'm not sure that
the additional gains there will outweigh the corporate
side costs (SS/Medicare taxes, corporation
setup/accounting fees, etc.) enough to make it
worthwhile. I have also investigated splitting income
between my spouse and me; however that situation may
not exist for long with my wife possibly going back to
work soon.
I would like to shelter as much income from taxes as
possible; however I still need to receive enough
income on which to live. Also, the overall savings
need to justify the extra time required for whatever
solution is utilized. Please correct me if I am
wrong, but I believe I can utilize the home office
deduction even if it is a foreign address. Also, what
is the validity of paying my children to help with
some of the tasks within my home office?
Most of the information I have presented is from my
own research on the subjects of taxes and
corporations. I am really looking for some guidance
to reduce my overall tax liability. If setting up a
corporation is not the best solution, you have
additional suggestions, or know where I can get help
with this situation, please let me know. I have tried
to give you as much information as possible in this
email, but please respond with any additional
questions you may have. I appreciate your time in
addressing my issue.
Sincerely,
__________________________________________________
david ingram replies:
You are a typical client and have obviously done some homework.
I do not advise a corporation. If you are looking for sheltered money, your
ONLY solution is to buy a CANADIAN RRSP in my opinion although I do not like
RRSP accounts in general.
You should be filing a joint US return with your wife to keep the US tax
down, You should be paying your wife and children to "help out:
You should be re-arranging your affairs to make your Canadian mortgage
deductible.
This is NOT the kind of quick answer this is set up for, If you want more,
you would need to book a phone or in person consultation for which I charge
$400 Cdn per professional hour.
The following is from another "sort of" similar situation.
-------------
Hi
My question concerns my situation for filing for 2005. I am a US citizen
with Canadian Resident status as of Jan. 2005 so I know I will be filing my
usual US 1040 plus a separate return to Canada.
I do not work at all in Canada. My income is all US based with 1099's. I am
a performer and do corporate convention dates in the US(1099 reported) and I
do cruise ships(1099 reported).
Is there anything in particular that I should know as far as the best way to
file to save myself the most in taxes? My Canadian wife and I also bought a
house together up here in BC in Dec. 2002.
Thank you.
-----------------------------------------
david ingram replies:
Cruise ship, County fairs and Corporate shindigs are always fun tax returns.
I guess we do a dozen every year for singers, ventriloquists, musicians and
stand up comics.
Your first tax liability is to the US and any states with a tax return that
you appeared in. California is the most important here.
Your second liability is to Canada. After preparing the proper US forms we
have to convert everything to Canadian funds and prepare a Canadian T-1 with
a T2032 to report your professional income.
I got started in this business 42 years ago by sending Canadian performers
to the US (to play places like the Gate of Horn in Chicago the Mon Ami in
LA, Disneyland and the Hungry I in San Francisco. And then we would bring
in entertainers from the US.
Canada will then give you credit for the taxes paid to the US and states.
There is a problem with the Social Security however. As a resident of
Canada, you will be paying Canada Pension Plan rather than Social Security.
This is under the US/Canada Social Security Totalization Agreement. 99% of
US based accountants would do this part wrong because it doesn't seem
logical unless you work with it all the time. The advantage is that you pay
a LOT less out of your pocket. The disadvantage is that you will get a
smaller pension. However, if you use the money correctly, you can even make
your Canadian Mortgage interest deductible on your Canadian return. Goto
www.centa.com and read the November 2001 newsletter in the top left hand
box,
ANY self-employed person in Canada can make their CANADIAN mortgage interest
deductible and most others can do it as well if they will take the time to
change their investment priorities.
This is also a good question (for a follow-up) for the Sunday Morning
program this week,
Answers to this and other similar questions can be obtained free on Air by
david ingram on the last Sunday of each month.
On the last Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram will be
a 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.
I will be at the seminar following the last Sunday of the month.
------------------------------
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 -
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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
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and all non-contractual duties are expressly denied. All readers should
obtain formal advice from a competent and appropriately qualified legal
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