I am receiving a teacher's retirement pension from the State of
California (CALSTRS). If I should relocate to Canada, at what rate
would I be taxed?
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david ingram replies:
I haven't got a clue.
You have not told me how much it is and I do not know what your other income is.
Just like California, Canada has a progressive tax rate which charges higher rates of tax on higher amounts.
In general, today Canadian tax for a self-employed person is lower than California tax for a self employed person because the US has higher social security taxes.
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at low income rates - i.e lower than $35,000 or so for retirees, Canada taxes Americans more that California because we tax 85% of social security from the start whereas there is a large exemption for social security in he USA.
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For Example
At $20,000 of California teacher's pension and $15,000 Social Security a 67 year old single teacher with a paid for house or rented apartment and no itemized deductions would pay about $80.00 California and $1255 Federal tax for a total of $1,335.
In British Columbia, the federal tax would be $2487.39 plus $1,105.10 for a total of $3,593.49 or about $2,258.49 more tax in Canada or at least BC.
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At $50,000 of California teacher's pension and $15,000 Social Security, the same person would pay $9,543 federal and $1,942 California for a total of $11,395.00
In BC (every province is different as are 43 states), the tax on the $65,000 would be $9452.73 federal and $3,841.99 for a total of $13,294.72 or $1,900 more than California.
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at $80,000 of California teacher's pension, the US federal tax is $17,204 and the state tax is $4,732 for a total of $21,936
In BC, the federal tax would be $16,798.18 and the provincial tax $7,285.04 for a total of $24,083.22. or $2,147.22 more.
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Note that this only deals with a single pension and social security.
Differences in taxation of Capital gains and dividends can also have a significant affect on your taxes.
However, I think that you will agree that $200 a month more is not likely enough to stop someone from making the move.
And, of course, if tax was the reason, you would go to Nevada or Texas or Florida or Alaska where there is no state income tax and save even more.
-----------------------------
For salaried people the following might be of interest -
---
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,
---------------------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.
------------------------------------------
--------------------------------------------------------------------------------
My_question_is: Applicable to both US and Canada
Subject: US citizen working in Canada; what are my tax liabilities?
Expert: taxman at centa.com
Date: Friday January 04, 2008
Time: 12:54 AM -0000
QUESTION:
I am planning to start working for a Canadian company in Toronto, Ontario on February 1st, 2008. I have a wife and 4 kids whose ages at the end of 2008 will be 18, 16,14 and 3. My wife is a homemaker and the children will provide no additional income. My estimated gross will be 195,000 with rental costs of approx. 30,000. My questions are the following: What is my estimated provincial and federal tax liabilities and what credits am I eligible for? I will also be maintaining a residence in Knoxville, tn USA and will be reporting the month of January's income earned in the USA. Next Question is what are my liabilities/credits for the income earned in Ontario,CA? Thanks for your assistance in this matter.
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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.
--------------------------------------------------------------------
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,
________________________________________________________________
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.
--
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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
--IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-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 circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com. If you forward this message, this disclaimer must be included." -
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