Hello,   I'm a an engineer from Canada working in Nigeria. I got this email address from the following site, http://centa.com/toc.htm   I was wondering if you guys have experience dealing with this type of tax situation and if you have any recommendations concerning what approach I should take doing my taxes.  Please let me know if you can offer assistance, if you need additional information, please advise.   Regards, -----------------------------------------------------
david ingram replies:

Nigerian personal income tax rates range from 5% to 30% with the liklihood of your rate being 30% as a highly paid foreigner.

In general what happens with a worker in your position is that the company is paying the tax for you so that if your pay was $100,000 'after tax', the company is treating your wages as a $142,857.14, paying the Nigerian goverment 30% or $42,857.14 and giving you the $100,000 left over.

From that $100,000, they would likely deduct CPP and EI and about $10,000 in Canadian Income Tax.

If you have been working out of  Canada for a 12 month period and your employer qualifies as a Canadian Employer and you are working for a Canadian branch (they have at least 12 office locations in Canada) and can sign a T626 (Overseas Employemtn Tax credit form) you are essentailly exempt on up to $80,000 (prorated by the number of months if 6 or more) and taxable on the excess.

You can see the form at http://www.cra-arc.gc.ca/E/pbg/tf/t626/t626-06e.pdf

When doing your return, you would fill in the T626 and a foreign tax credit (form 2209) for the tax paid on the (142,857 - 80,000) $62,857.

In a sample i threw together, as a single person living in BC with no RRSP or any other deductions, you would receive a $2,851.00 refund from Canada - remember the $10,000 of tax deducted.

Note that in this case, if you put $5,000 into an RRSP your refund actually goes "down" to $2,809.29. 

If you paid  $1,000 Union or professional fees, your refuind goes DOWN.

So be careful what you do in this situation.  Conventional tax deductions can take away from the benefits of the foreign tax and overseas employment tax credits and most of the run of the muill Canadian accountants do not realize this.

Therefore, if you are on a monthly RRSP contribution plan or something similar, stop it and if you are paying Union or Engineering  Dues, do NOT claim them on the return.  If you have already made RRSP contributions, do NOT claim them, carry them over to a future year. If this is NOT your first year and you have already filed for last year, check it over.

You asked if we can do this, the answer is yes.  That is 'what' we do.

Why did I answer the question as thoroughly?  I used it as a training question for an international  tax course.  It was picked out of about 60 questiosn, 59 of which are not being answered.  Your name has been added to an international Q & A list.  If there are too many replies that you do not want, just send back one with "remove please" in the subject line and you will be removed.

QUESTION:

I had TN status in the US but was laid off yesterday. I returned immediately to Vancouver the next day, surrendering  my I-94 card, but all of my personal effects are still in the US. I plan to look for work in either the US or Canada, but  will conduct the job search from Canada.

How should I proceed to take care of the goods that I still have in the US? Can I purchase roundtrip airfare and in  that time period, plan to move my stuff back up to Canada or store it temporarily while I look for another job? If so,  do I have to wait a specific time period or can I fly back, say, within the following week? Do I need to get a visitor  visa to do this?


------------------------------------------- david ingram replies:

Coming back to Canada immediately is required but can usually be avoided by going to a local Homeland Security office and having them change your status to visitor to give you time to arrange to close up an apartment and arrange to move or store you r furniture.  Many people manage to find another job during that time and never really have to move although a recent one ended up moving from California to North Carolina but that was better than the double expense of a move to Canada and 'then' to North Carolina.

If you go to the border or the airport now with your tale of woe and tell them that you are just going down to close up your apartment, etc., it is unlikely that you would be denied entry. 

Good luck on the job search. �

I visited your website recently.   I have a need to discuss international tax matter with you.   I am a US citizen - dual citizen of India. I have been residing in US since 1996.   Prior to coming to USA, I had purchases some stocks in India (using Indian rupees) back in 1993. This stocks have appreciated in value and I did some sale recently. There is no long-term capital gain tax in India (zero). Also, these income in India is held in Non-Repatriable NRO account (Reserve Bank of India DOES NOT allow these funds to be repatriated out of India since it was originally bought using Rupees income in India). I file income tax return in India regularly and there was no capital gain tax from the above transaction. Question is - do I have to pay US income tax (15%) on this capital gain or is there an exception to worldwide income rule here ? I have been told by some people (not a CPA) that IRS does not tax you in such cases where money is non-repatriable. Hypothetically, one could make non-Repat gain in India for $100M and at 15% rate if IRS asks him to pay $15M tax how could he even pay that kind of tax in a lifetime if he is simply salaried employee making $100K per year in the US? Someone even guessed (can't rely) that tax needs to  be reported to IRS but it becomes payable only when funds in India become repatriable.       Can you please advise.   Thanks --------------------------------------------------------------
david ingram replies:

This situation used to be covered since 1974 by Revenue Ruling 74-351.  However, this ruling was declared partially obsolete in May, 2007.

1.    The profit is absolutely taxable to you as a US citizen whether you are physically in the United states or living in India.  US citizens are taxale in the US on their worldwide income no matter where they live and no matter where the money is paid from.  If they are truly non-resident, they may be eligible to exempt up to slightly over $80,000 of earned income (from services NOT investment).

2.    As the holder of this foreign financial accouont in India, you shouldhave been filing Treasury Form TDF 90-22.1  which you can find at

                http://www.irs.gov/pub/irs-pdf/f90221.pdf

failure to file this form (as you can see by reading the fine print at the bottom of the form) is a minimum fine of $10,000 (as of June 20, 2007) to a maximum fine of $500,000 PLUS up to 5 years in jail.

3.   If the currency is blocked, you can elect to defer the tax until

    a.    you actually get the money unblocked OR
    b.    you actually use the money by spending it on a trip to India or giving it to your mother or using it in some other manner.  For instance, you might have someone give you $10,000 US in the States and then they use the $10,000 worth of rupees when they get to India.  The deferral is taxed at that time.

4.   Note that extending the payment can increase the tax if the value of the currency increases relative to the US dollar as has happened in the last two or three years.

Assuming you are using the money somehow in India, you are likely better off paying the tax to the US with other funds.  Keeping track of the deferral process can be a bookkeeping nightmare and is NOT worth it for small sums. �

I just recently became a canadian resident but I am presently living and working in the USA.

Do I need to file tax in Canada (considering the fact that I do not earn any income there and that I will file tax in the USA)?

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I think what you mean to say is that you just became the holder of a Canadian PR (permanent residence) card but have not yet moved to Canada.  If you are single or married with your family in the US, there is no necessity to file a Canadian return although you might want to do so by reporting all the US income on line 104 and other relevent lines and then dedcuting it all on line 256 under Article IV of the US / Canada income tax treaty.

On the other hand, if you have a spouse and children and they are living in Canda and you are visiting them every weekend, you need to file a Canadian tax return and may or may not be taxable in Canada depending upon what else is going on in your life.  For instance, if you are also trying for a US green card and reaklly intend to live int eh US, even with the sopouse and children in Canada and a PR card, under US law you are a taxable resident of the US and although you would report the income to Caanda, you would then deduct it all on Line 256 of the Canadian return and pay no tax to Canada.

Under the PR card rules, to keep it alive, you must be able to prove that you have beenphysically present for 24 out of any 60 month period OR be living outside of Canadian citizen OR be working outside of Canada for a Canadian company.  For the record, you can NOT own or be a controlling shareholder of that Canadian company. �

I live in PA.  My husband and I are going to be purchasing my grandmother's house from my mother and uncle who inherited it when my grandmother passed away. We are purchasing it for 75,000 with them giving us a gift of equity of 35000 (Purchase price of $110,000(appraised value of the home)...Will they have to pay capital gain on that? Or will we?  If either party does, how much is capital gain tax typically?


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david ingram replies:

If they have just inherited it four months ago and you are buying it now and it has not gone up in value, there would niot be any capital gains tax payable by your mother and uncle,.

If they inherited it two years ago and it has gone down in value since, there will not be any capital gains tax.

If they are giving you $35,000, the rules today are that they can give you up to $12,000 each with no gift tax.  therefore, your mother can give you up to $12,000 and your husband up to $12,000 and your uncle can do the same thing so there is no gift tax problem nor is there the need to file a form.

If they inherited it five years ago and it has doubled in value (or any other amount), they can expect to pay 10% capital gains tax on their share of the increase.

The following comes from Kerry Kersetter's very excellent Q & A forum on US tax.  I recommend it wholeheartedly and you can find the newsletter uitself at www.taxguru.net.

The following is two days old on his site.

Sir, I am a Canadian citizen employed by a US company. I have been contributing along with my employer to the company 401K plan for a number of years now (19). For those years Canada has been taxing my part of the total contribution as taxable earned income and adding these to the amount shown under "Wages, tips, other compensation" on my US W2 Wage & Tax Statement. There has been no US tax paid on these contributions. My question is: Will Canada tax this money again under the terms of the US/Canada tax treaty when I retire and commence withdrawing amounts from the 401K plan. I  understand that the US will apply a withholding tax as per their own tax rules, however I do not know if Canada can double dip under the rules of the treaty. Thank you in anticipation of a reply.    --------------------------------------------------------
david ingram replies:

You will be paying 15% tax to the US on the amounts coming out of your US 401(K).

This 15% is then deductible as a foreign tax credit on your Canadian tax return.

The part that you are being returned where you did not get a deduction has to be isolated out of the blended payments and can be claimed tax free in Canada but you will not get credit for the 15% tax paid to the US so it 'is' Double Taxation.

I think but am not yet sure that an amendment to the Tax Treaty on Sept 21 will allow you to deduct the US 401 K on your Canadian return but until  the CRA releases its Technical notes on the new amendments to the treat, I will not be sure.

Anyone else with an opinion?

1] have you received my cheque for my 2006 taxes invoice?

2] my mom's husband [my stepfather] passed away earlier this year.  He willed his xxxxxxxx townhouse (in which he & my mom lived, and in which she still does) to be split as follows:

40% to son [my stepbrother]
40% to daughter [my stepsister]
20% to my mom.

The three of them are on very good terms.

The thinking has been that sometime over the next few months the townhouse would be sold, the proceeds divided and my mom would move to a smaller place.  My mom is now considering (subject to stepfather's kids agreeing):

i) having the townhouse appraised/valued; she figures it's about $300,000
ii) using her RRSP to buy the home, and pay each of them 40% of appraised value (i.e. $120,000 each in this example) and staying there.

Further background:
- she has never been a homeowner in whole or in part
- her RRSP is not worth much more than $250,000
- she's 68, in good health, has a part time job
- she realizes that her post-purchase income (job/pension) will also be a determining factor

So, my/her questions are:
a) is there still a program in which first-time home buyers can use their RRSP to purchase, with minimal or no tax consequence?
b) what is your opinion on what she's considering?

My humble thanks,

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david ingram replies;

I received and deposited the cheque. thank you.

I am surprized at the will.  It is unusual for your stepfather to break it up that way unless it was a very very short marriage. If it was a long marriage, she can  challenge the will and get the whole house or 80% herself or at the very least, the use of the house as a life estate. A life estate leaves the house to his children but she gets the use of the house until her death.  in the case of a life estate, ther is no onus on her to pay anything to them in the meantime.  If they wanted money, they could mortgage their respective shares but would have to make payments themselves.

Usually, he would at least leave her with a life estate for the use of the house until her death.  I think she should challenge the will and the house should be hers to live in until her death or inability to look after herself in the house.

On the other hand, if they were only married for three years and that was what she understood would happen, she should just proceed.

There is a first time homeowner's RRSP loan for $20,000 but it does not apply in her case becasue to use it, neither she nor her husband could have owned a home in the last five years.

She can arrange to use her RRSP to put a first mortgage on the house to buy it from the kids if that is what she decides to do.

She needs to see a good family lawyer.  AND, it does not matter what the relationship with the step kids is.  It is to their advantage to leave the will as it is.  If they have not themselves recognized the inequity, the  relationship will not  remain  'good'.   I am putting  this on the list to see if any of the others want to comment with suggestions. 

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People do funny things with their wills.  In one I have dealt with lately, Dad disowned his son (who admittedly he had little contaxct with for 10 years) and left all his estate to an old girl friend from when he was 16 or 17.  He had two wives in between then and his death at 64. The old ex-girl friend did not even go to the funeral.

David,   My question concerns what tax and immigration rules will/might apply to an individual in the following situation.                I am a US Citizen and immigrated (landed) in Canada in Jun of 2006.  During 2006 I worked 4 mths in the US, and had no CA income. In 2007, I have worked in Canada doing various odd jobs but not enough to provide for many comforts.             My work is fairly specialized and I have been having trouble finding my type of work here in BC.

            I have recently gotten several requests to go back to the US to work and I’m considering doing this for 6mths to 1yr.

            My employer says they’ll let me work 1-2 days a week off site (aka home in Canada). Btw, I’m in BC, Job is in Seattle.

            (I believe all my us income will all be in the for of W2 income)

            I have read a lot of info on your site and thru your mailings about this situation and still have a few questions on taxes and on the affect that working in the states will have on my Canadian Residency which I’d like to keep up so I can get my citizenship.

            If I start working in the States 4 days a week should I register and insure my car there ?

            Should I get a US drivers License? Will I be able to drive a US Car with my Canadian License?

            How about any problem registering my Car (that was imported into Canada) back in the states?

            (I’m considering just buying another car down there)

            I see you have a specific charge for Cross border move in/outs, the US job definitely pays well enough to afford this.

            Are there any other expensive issues that I might run into with this work situation?

           What type of records do I need to keep if I’m going to be doing some work in Canada some in the US ?

            When I immigrated into Canada, I had to fill out forms that listed my belongings that will be brought into the country.

            I listed my furniture, appliances, car, RV and stuff like that. What should I have done about Canadian assets ?

            Should I have listed my Canadian property that I bought in the 92 on this immigration form ?

           (If I should have and didn’t is there anything I can do to remedy this?)

             I read from one of your mailing about capital gains on departure that brought some questions to mind.

             “The exception is out of country property you owned before you came to Canada or out of country property you inherited while you were a resident if you were a resident of Canada for less than 60 months in the ten year period BEFORE you emigrated.”

             I bought property in 91, immigrated in 2006, so I owned this property 14yrs before I moved into Canada. I don’t want to give up my Canadian Residency; it was hard enough to get in the first place.

             Will I need to fill in a departure form (T1161) at all as I’m trying to keep my CA residency? If I do, what do I do with my CA Property ?

            Fyi, I don’t own any stocks or US properties, just a bit in an IRA down in the states.

            You’re a great source of info and I appreciate your advise on this complicated matter.

Thanks,


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david ingram replies:

You are not alone.  At any time, I wil have 30 to 60 people doing what you are doing to varying degrees.

You will still be a resident of Canada commuting to work in the USA.

You will keep your BC driver's licence, your BC Licence on the car, and your BC Medical.

However, if you expect to be sleeping in the US more than 183 days during the Calender year, you should write to BC medical and ask them for permission.

However, if you are going down Monday morning and coming back Wednesday night and working in Canada Thursday and Friday, BC medical will not be a problem.

The mnumber of days in Canda will be a problem for  Canadian citizenship. For citizenship purposes, you have to be able to prove physical prescence in Canada  3 out of 4 years which  translates into 1095 days (nights) out of 1,461 nights.  Therefore if you leave Canada on Monday morning and come back Wednesday night, that is only 'TWO' nights out of the week that you are not in Canada.

If you go on Monday and return on Thurday, it is only three nights out of the country and will still not affect BC medical.  If you only do it for a up to two years,  year, it will not affect your citizenship residency. If you do it more than two years, you will be getting close.

For taxes, ideally, you will pay tax to the US first on the income earned in the USA and to Canada first on the money earned in Canada.  Not particularly complicated if you keep good track of the days.  Cell phone records and credit card records are a good method.  If you buy gas as you cross the borders into the other country, the credit card record is an excellent record.

There is no departure tax because you are not departing.

One more thing.  I thought you had come to Canada in January or February 2004. As long as you were here legally, you can use 2 days to make one towards your citiszenship requirements before you got your PR card.  If you were just visiting, that does not work. 

You are not leaving the country as described and there is no need to fill out form T1161.

However, since Washington is a no inocme tax state, you CAN expect to pay another 4 to 8% or so taxes on your income when you fill in your Canadian return.

If you were in California, that would not be true.  For a single person, California and New York taxes are now more than BC taxes for the same person if there are no large special deductions in the states like mortgage interest and property and sales  taxes. However, since it is relatively easy to make Caandian mortgage interest deductible as well that advantage does not really exist with proper planning.  GOTO www.centa.com and read the November 2001 newsletter for information on how to make Canadian mortgage (or any other) interest deductible.

And if things get hectic and you find yourself there for 24 to 36 months, the rules are that for any 60 month period, you have to be physically in Canada for 24 months to keep your PR status alive. As described, you will find it very easy to live with that. �

Dear David Ingram,

I have a question regarding bringing money into the
United States.

I am a green card holder and I have received it
through my wife (She is an American Citizen) a few
months ago and therefore I have not filed any tax
papers till today.

I live in Iran at the moment and I will be moving to
the United States (California) in the next month to
continue my studies. I have a property in Iran which I
will be renting it during my stay in the States. How
would it be possible for me to receive the monthly
rent money from Iran (legally ofcourse), without
having to pay any kind of tax on it in the states ( As
I will pay tax for it once in Iran).

Or if one day I would sell the house, how can I bring
the money in ?
 
If there is too much sensitivity on Iran, I can also
receive the money from another country such as Dubai
(If that would help).
 
How do you think I should handle this money transfer
in order to avoid any tax problems ?
 
Any help or advise from you would be highly
appreciated.
 
Regards, 

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david ingram replies:

The second you receive your green card you will become taxable on your world wide income in the United States whether you earn it from wages or services or whether it is investment inocome such as rent, capital gains, interest or dividends.

You will pay your tax in Iran first and then report the gross and net amounts after expenses again on US schedule E which will be part of your US 1040 tax return.  Any tax paid to Iran will be a credit on the 1040 by filing US form 1116.

I recognize that it may be difficult to transfer money directly from Iran to the US.  However, the paper trail wouild be better if you could do so. If not and Dubai has to be an intermediary, use it.  Just keep a good paper trail.

With a wire transfer, you do not need to fill out any US forms, the bank will do it for you.

When and if you sell, the profit from 'when you entered the US to actual sale' will also be taxable on your US return. I think that Iran has a flat capital gains tax of 25% but am not positive so you will have to check this further.

However, if you do pay capital gains tax to Iran, it will also be a tax credit on form 1116 after reporting the capital gain on schedule D.
This older Question will likley assist you or you and your wife to understand the paperwork.