Taxation for US citizen working in Canada -

QUESTION:

I am a dual citizen. Canadian first, USA second. I have lived and worked in the USA for 18 years now. 

One year ago, I moved to Point Roberts and found work with a Canadian company. I am on their payroll and deducted appropriately. 

When I contact a tax company to do my taxes, they said as my address is in the USA, I don't qualify for any deductions in Canada and in fact I shouldn't have been deducted as I should be declaring the income in the USA. 

Can I get feedback from you? 

Regards, 

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david ingram replies:

You need a different accountant.

If you are working as an employee in Canada, that employer should have deducted Employment Insurance, Canada Pension Plan and British Columbia Provincial and Federal Canadian taxes from your earnings. 

Because you do not live in BC, you are not eligible for BC medical (or any other province's medical plan  if you were in Detroit and Windsor, or St Stephen  NB / Calais Maine for instance). They should not be deducting or having you participate in BC Medical. 

The car you commute to work in should be registered in Washington State and you should have a Washington State Driver's License and buy your own medical insurance in Washington State.  If the company has a group medical plan, they should not have you as part of the group and should be paying you the amount they would be paying for the group so that you can buy your own medical in Washington State.

Your tax return would be a Non-resident tax return but you 'would' calculate your tax for British Columbia rather than calculate the Federal surtax which is higher than BC tax as a rule.  In  addition, your Canadian Tax return requires schedule SA and SB to be filed to determine the percentage of personal exemption amounts you are entitled to use on schedule 1.

For the US return, you will report the Gross wages on the 1040 as your wages and then you will add the CPP, EI, BC tax and Federal tax  together and  claim a foreign tax credit on form 1116 of your US return. 

You should try and find someone who is experienced in both countries and there are not many of us out there.  We have 4 1/2 people who specialize in the preparation of US Canadian income tax returns.  (We also consult on New Zealand, Australian, Mexican and Great Britain returns, prepare the Canadian and sometimes do the other return as well.  One of our people, David Holroyd,  is also a Mexican citizen although he has lived 50 years in Canada.).

You also have to watch out for other things.  For instance, if you were given a Canadian Company car, you could drive it from the border to your house, park it and then drive it back to the border the next day. but if they caught you at the Reef with it that night it would be seized.  If your friend was visiting from Vancouver and their car was blocking you  driveway and you took their car to the store and back. it could be seized as well.


If you need help, I would be happy to assist. Understand that maybe 1 out of 150 tax preparers has any idea about how to deal with your return.

This other question I answered just yesterday on June 11, 2008 will also help with the concept.  In this case the Canadian taxed the money but failed to calculate BC tax.  It is also my experience that 9 out of 10 or 11 out of 12  US consultants fail to deduct the CPP and EI as a foreign tax credit.
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QUESTION:

Hello,
Thank you in advance for any information provided.

My wife is a US resident green card holder who works in Canada 4 days a week. 2007 was her first full year as a US resident. This past year, 2007 tax, she filed her Canadian income tax and the tax preparer did not file for BC provincial tax, she said we would not owe it. We reported her Canadian tax as foreign tax credit on our joint US 1040 return. My wife received a Notice of Assessment from Canada Revenue with a change to BC tax payable. I am looking for information as to what is correct here so that I know how to reply to the original tax preparer we used in White Rock. 

Thanks!

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david ingram replies:

The assessment is correct but may be wrong because of incorrect information.  I bet that your preparer also failed to include Canadian forms SA and SB.

Your Canadian return was done incorrectly.  She was to pay BC tax and,  'if', for instance, she had worked in Alberta as well, she would have had to pay Alberta Tax on her Alberta earnings and BC tax on her BC earnings.

We have several Air Canada Flight personnel who live in the US.

As an example. 

If they leave Vancouver and fly to Calgary, 1/2 of the tax is paid to BC and 1/2 to Alberta.

If they then fly to Toronto, 1/2 is paid to Alberta and 1/2 to Ontario.

If they fly to Ottawa, all of it is paid to Ontario.

If they fly to Toronto, all is paid to Ontario.

If they then fly to Chicago, about 8% (Canadian Air space flight) goes to Ontario

If they fly back to Calgary, about 7% is credited to Alberta.

If they then fly back to Vancouver, 1/2 goes to Alberta and 1/2 goes to BC.

This is done of Canadian form T2203 - You can find and peruse the 93 page form at

http://www.cra-arc.gc.ca/E/pbg/tf/t2203/t2203-07e.pdf

This form would also be used if you lived in BC but had a proprietorship in Ontario

It is here as an example only.

In your wife's case, the preparer should have used Form BC428 to calculate the Provincial tax and as I suggested forms SA and SB.  If the Canadian return was incorrect, your US return will also be incorrect because the foreign tax claimed is now also incorrect on your US form 1116.  You will need to file US form 1040X.

I am assuming that he or she calculated the non-resident surtax.  The good news may be that the BC tax is LOWER than the Federal Surtax applied to non-residents.  This may not do you any good if you managed to use all the Canadian Tax paid on as a full credit on US form 1116.  However,  If you did not use it all, the net result will be a refund.

AND, when you did do the form 1116, I hope that you also claimed the Canada Pension Plan and EI premiums as part of your foreign tax credit.  Most people in your position miss it.

Good luck.  Remember, your kind of return is what we do and at least 35 percent of our clients do not live in Canada.

This older pilot's question explains that part further


I hope you're not too busy for a question about my tax situation. 

I am a pilot working for a Canadian airline in Toronto.  I am a U.S. permanent resident, married to an American, and living in XXXXXX, XX.  Last year I used an accounting firm in Mississauga to take care of my tax situation, but I had only been working at my current airline for a couple of months and had been in training during that time. 
This last year I was flying for the same company the entire year and flew a variety of routes in both Canada and the U.S. 
It is my understanding that as a pilot and a non-resident of Canada I should calculate what percentage of my income was earned while flying in Canadian airspace and what was earned outside Canada (while flying over the United States). 
The income earned while flying outside Canada would not be taxable by Canada and would be subject to taxation by the jurisdiction in which I live (ie. the U.S.A.) 
This should result in my paying significantly less tax, in proportion to the percentage of my flying that was conducted in U.S. airspace. 
Do you have any knowledge of or experience with this type of situation?

Thanks,
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david ingram replies:

You are a non-resident  of Canada and as such have to pay tax to each province or territory you  land in.  The GOOD NEWS!  We have access to every Air Canada flight and have an excel program which allows us to calculate the earned income for each province for a multi-jurisdictional tax return as on form T2203.  You can find this '87' page form at http://www.cra-arc.gc.ca/E/pbg/tf/t2203/t2203-06e.pdf.  We have over 40 others in your position as clients.

If you are not flying for Air Canada or Air Transat or one of the larger carriers with regular flights, we can still look after the return but it takes more work if you are the only one because we have to start from scratch.

For instance, I have another charter pilot who has flown into Igloolik, Whitehorse, Inuvik, Old Crow, Whittier, Fairbanks, Dawson City, Anchorage, Atlin, Watson Lake and another twenty  communities in the Yukon,  Northwest Territories, Nunavut, Alaska, BC and Alberta.

'Her' situation requires her to keep track of time in each jurisdiction because the Yukon, NWT, Nunavut, BC and Alberta all get their piece of the action.

However, whatever  your situation, We would be pleased to help you with this.

And, that was very gallant of you to let your wife cross the finish line 2/10ths of a second in front of you.

This older question will give you some more input.
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david ingram replies:

That is what we do.

Over the years i have dealt with over 100 CPA, CAIL, Air Canada and Western Airline pilots doing what you are doing.

We also have dealt with some 200 cabin crew in the same situation although they are now few and far between.

If you are flying domestic in Canada, it is more complicated than if you are flying international.

If flying domestic, each flight you make has to be prorated between the provinces you land in.

As an example.

If you  fly from Vancouver to Calgary, half the flight is credited to Alberta and half to BC. 
If you then fly from Calgary to Toronto, 1/2 goes to Alberta and 1./2 to Ontario.
Toronto to Ottawa and back to Toronto all goes to Ontario. 
Toronto to Chicago gives about 8% to Ontario and the US gets the rest. 
Chicago to Calgary gets about 8% to Alberta and the rest to the US
Calgary to Vancouver is half to Alberta and one half to BC.

You will be looking at a minimum of $1,500 and likely more if domestic as a fee.

If you are flying internationally, it is a little easier because there are less pro-rations necessary and it would be cheaper..
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