How to achieve the goal of being considered a deemed non-resident of Canada while holding TN visa -

My_question_is: Applicable to both US and Canada
Subject:        How to achieve the goal of being considered a deemed
non-resident of Canada while holding TN visa
Expert:         taxman at centa.com
Date:           Sunday January 21, 2007
Time:           01:06 AM -0500
QUESTION:
Dear David,
Last year I learned from your hundreds of pieces of advice about how a TN
visa holder filed a smart Canadian tax return, while my husband moved to the
east coast of US with TN visa in the mid of 2005 and our child and I
remained in Vancouver. Finally, CRA rejected our use of Line 256 to exempt
my husband’s US employment income despite of his declaration about the
intention of moving whole family to US soon and the proof of his US tax
resident alien status as well as the severance of some secondary ties such
as MSP, driver license in Canada. CRA’s explanation was simple and firm: the
only fact that me, our child and a home remained in Canada constituted my
husband’s Center of Vital Interest under the tie-breaker rule of the tax
treaty.
The exhausting situation didn’t allow us to spend more time on arguing with
CRA. What we did to response was paying what CRA wanted including the tax
interests and moved everything from Canada to US in August 2006. Afterwards,
CRA determined we became Canadian tax non-residents as of the day we
departed from Canada.
The new filing season comes. We face the same problem. My husband has
already received his tax package from Canada which is used for a BC
resident. We all know CRA will prefer applying their last year’s rule to my
husband’s 2006 part year return, even though he didn’t earn any Canadian
source income, he didn’t own any property in Canada, he didn’t share any
Canadian social benefit and he had not visited Canada until the last 20 days
to come back in helping moving us and all of our households to US. I have
never agreed CRA’s application. I studied countless times on the Article IV
of the tax treaty and every related text from CRA and IRS tax publications.
I am trying to convince myself CRA is right and we are wrong, but I’m not
able to achieve that.  I hope to get your professional opinion that tells me
whether my husband’s situation was not sufficient enough to escape from
Canadian tax on his US income, or whether it is just a matter of technical
skills on how to effectively make our point to CRA.
I think the conflict between CRA and we is the way to define the concept
“Centre of Vital Interests”. In other words, our conflict is on how to exam
my husband’s personal and economic relations with Canada and US. According
to CRA’s assessment notice to my husband’s 2005 tax return, it looks a
rental home in Canada, a wife and a child living in Canada can solely
override all other personal and economic ties that my husband has given up
in Canada and established in US, where he works for his only source of
employment income as well as all passive incomes; where he pays rentals for
his habitual abode; where he owns financial accounts to perform all of his
economic activities in the world. Moreover, my husband’s US tax resident
alien status seems not important for CRA to consider he could be actually
treated as a deemed non-resident of Canada under the tax treaty.
I’m trying to forget the money lost last year and regain a hope this year,
as the nature of our situation brings my husband’s personal and economic
relations much closer to US than Canada, plus the fact that moving whole
family from Canada to US in the year. However, I’m aware it’s not easy to
argue fairness with such an authority. Still, I want to learn how you would
judge the situation. I believe any of your opinion would be educative to me.
Reading your emails has been part of my daily life for the past 11 months.
Thank you for reading this long message. I’ve started to wait for seeing
your advice.
------------------------------
david ingram replies:
we likely did 40 of these last year with only one failure that I know of and
that one was because the Canadian spent a lot of time in Germany and was not
in the US for more than 183 days.
You should file a "Notice of Objection - A T400" and go through more
official channels.
The fact that you have all moved to the US is now evidence of the intent.
For 2006 you should exempt everything on line 256.
Congratulations on attempting it but I am not surprized that you lost.  It
is  not something that many people would win on their own.
I can only think of four or five people in the tax preparation business who
would be able to do it successfully on a regular basis.
It is also the hardest to do with a TN.  To be successful, there usually has
to be an attempt to be getting an H1 visa when the spouse is still in
Canada.
On the other hand we have been successful for years with people where the
wife is still in Canada and has had two more children because she refuses to
go until he has his Green card so that she can work as well.  i.e. - the
family's hearts and souls are in the US.  Hubby has to have a place big
enough for the family and the family has to be visiting him in the US on a
regular basis.
If he always comes home to Canada and you do not visit him in the US, it is
hard to make work.
--------------------------------
 David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
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