I am moving from Montreal to the US, and I am wondering if there is a
Tax treaty between Canada and the United States? IE will I get a refund
for the Tax I am paying in Quebec if I move prior to years end?

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david ingram replies:
You have to file a departing Canda income tax return and pay the tax you woul dordinarly pay on that income with reduced exemption amounts based upon the number iof days you are in Canada.
I am up to my tail end with June 15th deadlines.

These two older questions should help you.

------------------------------------------

QUESTION: Hi David,

I am Canadian citizen, worked in Canada for the first 5 months of 2006. then moved to US and worked then for the rest of 2006. I have income from Canada employer, canadian bank and US employer. I filed tax return on my US income to IRS already. I haven't done canadian tax return yet. I had thought I only need to file canadian tax return on my canadian income. But it seems both CRA and IRS requested to report my world income to both. I am confused. What should I do to file the tax return to both? 

More specially, I received NR4 slip from CIBC bank. I could not find where to enter this form when I used Ufile.ca. 
How can I enter US W2 form into any Canadian tax form?
How can I enter T4 slip into US tax return form? 

thanks a lot!

_______________________________________________________________
david ingram replies:

An NR4 does not go on the Canadian return.  It goes on Schedules B and 1116 of the US return

The T4 does not go on the US return unless you are filing as a year round resident as in 2 below.

I am too busy to come up with a new answer but this older one will give you an idea.

QUESTION: Hi David,

I really need your help in filling U.S tax and I am getting mixed messages which forms to file. 
I am a Canadian Citizen in U.S on TN visa for more than a year. 
I have RRSP in canada over 10,000 put in fixed bond and saving account in a bank. 
What do I need to file here and what forms do I need to fill. 

Then send the information to us to complete for you
Do I still have to file tax in Canada for canadian earning? Please help.

____________________________________________________
david ingram replies;

You need to file a departing Canada tax return and file T1161 if you left more things than your RRSP behind.  The Canadian return will only include Canadian earnings although if you had a Home Buyers Plan, it is all due and taxable on the departing Canada return unless you have paid it back.

For the US, you have two choices:

1.   File a 1040NR dual status statement and a Dual Status 1040 Income Tax return with no standard deduction

or

2.   File a full 1040 which includes your Canadian income and gives you a full standard deduction and the right to file a joint return if married.  This is usually the best if you left Canada early in the year as you did.

If you can't figure it out, file an extension  form 4868 (find it at http://www.irs.gov/pub/irs-pdf/f4868.pdf )

Hi David,

About 18 months ago I asked you a tax question and told you I was leaving Canada to go back to the U.S.A. and you told me if I had been in Canada for 4 1/2 years why not wait to get my citizenship. Well,  if you hadn't said that I certainly would not have and I did.  So now I am a citizen and just bought a home here and am very happy to be a Canadian living in Canada so thank you for walking me through a moment of homesickness.

I do have a question.  My mother just died here in Canada and told my father to give me $25,000.00.  He gave me a check for $20,000 and one for 5,000 it wasn't in a will or in life insurance.  Do I need to report this as income to the the IRS.

Thank you very much for your time you continue to me an amazement to me.  And thanks for keeping me sane because I really love it here now.

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david ingram replies:

Congratulations on your dual citizenship.Sorry about your mother.

If your mother and father are American which I presume they are, there is a possibility that there is gift tax involved.  If an American gives anyone (other than their spouse) more than $12,000 the giver, not the recipient is liable for gift tax. You and he have to decide how and when it was paid and WHO GAVE IT TO YOU.  Maybe your mother gave $12,000 and your father gave $12,000 and if it was Canadian $$, $25,000 Candian is less than two x's $12,000 American.

in any case it is NOT taxable to you and is NOT deductible to them as far as income tax goes.

If mother is/was a Canadian and not American, there is no problem, because Canda does not have a gift tax. �

What percent is capital gain tax on profit made on sale of Canadian real estate by a U.S. citizen? ______________________________________________________________
david ingram replies:

Canada taxes residents AND NON-RESIDENTS at the same rate as opposed to the US which imposes AMT on the sale of US real estate by a non-citizen or non-resident.

Canada taxes 50% of the capital gain on a progressive scale ranging from about 23% at less than $36,000 to about 43% at amounts over $120,000  -  To be exact, the rate for 2006 is actually 22.57% at $36,378 or less and 42.92% at over $118,285.00

At 2006 rates, if you made a profit of $400,000 which would be $200,000 each between a husband and wife, they would each have to pay tax on $100,000 of $30,538.97 each which is 15.27% tax (on the $200,000) and compares favorably with the 15% max in the US.  In this case, the US would allow a federal foreign tax credit  against any US tax by filling in form 1116.

If the profit was $200,000 split between two people, they would each owe Canada $12,646.36 on their $100,000 share.

Happy to help with the returns if you do sell. �

Hi David,

I am a canadian citizen working in TN visa. Can I take additional jobs?

thank you

xxxxxxxx
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david ingram replies:

You can take any number of full or part time jobs with a TN visa BUT BUT BUT, you need a separate visa for each job.

So, if you are an engineer working on the Golden Gate Bridge and you wanted to work as a life guard on weekends, you could not because a life guard does not qualify for a TN visa.  But if you wanted to work as an engineer for another company on the weekend, you could get a separate visa for that.  One person I knew had 8 separate TN visas because he was working as a part-time consultant for eight different companies.  And, in his case, he renewed them four at a time for one fee for all four.

Whatever you do, do NOT work for someone without a visa.  If they do not like you or your work they just have to phone up Homeland Security and say you were working without a visa and you will be arrested, thrown in immigration jail, have to pay $5,000 US as bail to get out and will be deported back to Canda and your existing visa will be cancelled and you will be barred from working there for ten years. �

QUESTION:

I am a permanent resident in the US and have been living in
the US for 20 years.  I have been renting my house in B.C.
during this entire time.  I am thinking of returning to live in
Canada and want to know how long I have to live in my
house before it is considered my permanent residence, and
when can I sell it without paying capital gains.  Is there
anything I need to do to change the status from a rental
house to my primary residence when I move back?

______________________________________________________________
david ingram replies:

The bad news is that the very 'second' you move into the house you will trigger a capital gains tax for the increase in value from the day you left Canada to the day you return.  This gain has to be reported on line 127 of your first Canadian tax return.

The good news is that you can elect to defer paying the tax until an actual futre sale by filing an election uinder section 45(3).  there is no paper form for this election, you just write a separate letter stating 'I hereby elect to defer, etc, etc"

Once you have moved in, any increase in value from that date will be tax free as your personal residence but you can NEVER get rid of the tax liability on any increase in Value while you were in the US.

These older questions may help.

------------------------------------------

---

QUESTION:

I started building a house for myself in Canada and then married an American and moved to the USA. The next year I finished the house and have rented it out for 9 years. If were to move into it for a year but would travel abroad much of that time, would I be able to avoid the capital gains tax when I sell a year later
  ________________________________
david ingram replies:

The house has been subject to Canadian rental tax returns under section 216(4) each year.  I hope you have reported it on form T776 and your T1 return in Canada and then converted the figures to US dollars and reported them again on scheule E of your 1040.

You do NOT escape Canadian or American Capital gains tax by moving into it.  The second you move in, you have done a deemed disposal in Canada and are subject to Capital gains tax in Canada and owe that tax on your next tax return.  If you make an election under section 45(3) you can delay 'paying' the tax until the actual sale but you still trigger it the day you move in.

These older questions might help.
My question is: Canadian-specific

QUESTION: Hi David,

I am a Canadian citizen. However, from March 2000 to Nov 2004, my family and I became non residents while I worked overseas. During the period that we were overseas we rented our home in a long term lease agreement. When we returned to reside in Canada we purchased another home to live in and we have continued to rent our original house. Could you please explain how capital gains will be handled? Do we need to file anything forms with CRA prior to selling the rental house? Also, how would capital gains be handled if we sell our current personal residence and move back into the rental house?

Best regards,


________________________________________________________________
david ingram replies:

The first house has incurred capital gains tax from the moment you left the country.  Although it is possible to rent a house out for 4 years and claim it capital gains tax free by filing an election under section 45(2), this does NOT apply to non-residents.  We have had a couple of cases lately where the capital gains tax on the house is more than the tax saved by becoming a non-resident for three or four years because the houses went up so much in value.

I am assuming here that the second house you are living in has increased in value more than the rental since you returned and it should be your principal residence for that time because it would have been possible to declare the rental capital gains tax free after your return by filing the election.

Deemed Disposition!

Moving in to a rental house 'triggers' the capital gains right now although it does not have to be paid right now. The capital gains is calculated on schedule 3 and the amount put on line 127 of the T1 General Canadian Tax return.  You then make an election to defer paying the tax until actual sale under section 45(3) and deduct the line 127 amount on line 256.

This older question will likely help you understand it.


QUESTION:

We have moved out of country for job reasons and now look to return to
Canada.  Before leaving we tried to sell  our home and were unable.  For the
last 10 years we have been renting it.  We plan to move back into and then
sell it.  What must we do in order to avoid paying capital gains tax.

Dan

PS  We did not know that we could have declared it our principal residence
as we moved for job reasons and thus, did not do that!
====================================================================
david ingram replies:

When you moved out of Canada, you should have done a departing Canada return
and filled in either a T1161 or the former form (number escapes me at the
moment) to declare assets left behind.

At any rate, if you became a non-resident of Canada from your job move,
there is no exemption from capital gains tax on the increased value of the
house unless you were a deemed or factual resident of Canada while you were
gone.  A deemed or factual resident status can apply to people who are
working on CIDA projects, are members of the armed forces, are members of a
Canadian Diplomatic mission, working for the United Nations and a couple of
other esoteric items covered by Regulation 3400.

Your Belgian email address makes most of these possibilities unlikely.

In addition, you would have had to report your earned income to Canada every
year and I presume that you did not do that but did file a Section 216(4)
rental return to report the rent received.

A further complication is that if you returned to Canada and bought another
house which you moved into, there would not be an immediate tax bill but if
you move into the rental house, it is deemed to have been sold and you (and
your spouse if joint) owe tax on the increased value.

Fortunately, under section 45(3) of the Canadian Income tax act, you can
notify the CRA (Revenue Canada when you left 10 years ago) that:  I hereby
elect under section 45(3) of the Income Tax Act to defer the payment of tax
on the residence at XXX your street, until the actual sale.  Attach a
proforma Schedule 3 to calculate the profit and then pay it when you
actually sell the house.

In other words, if your intention was to move in for a short time to try and
make it tax free, you are just doubling your moving expenses and increasing
your accounting and legal fees.

If the idea is to move into a new house on your return, you are better off
to sell the one you have first and buy the new one
before you come back so that you have the most capital freed up to buy the
next house and move directly.

-  Incidentally - If you decided to keep the old one as a rental and borrow
money against it to use to purchase the new one, the interest on the
borrowed money is NOT deductible against the rental income even though the
mortgage is registered against the rental house because the money was USED
to buy the personal residence you are about to occupy.

You can learn more about this by reading CRA Bulletin IT-533 at:
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf

You can find out more about interest as a deduction by reading my November
2001 newsletter by going to www.centa.com, clicking on newsletters in the
top left box, click on 2001 and click on November. �

My question is: Canadian-specific

QUESTION: I bought a CMHC second home 2 years ago with 5% down.  My mother lived in the home rent free as per the guidelines and I did not and could not write-off any of my expenses.  I have just sold it for a tidy profit as my mother has moved out.  Now, I am hoping I do Not have to pay any Capital Gains tax as it was purchased as a NON-Revenue home through CMHC, only 5% down,  and I was not able to treat it as such with write-offs.  Am I correct on this?

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

The answer is simple. 

If you bought the house for your mother and she is getting all of the profit in her hands to keep,  you were just a trustee and there is no tax because it was your mother's house.

However, if you are keeping all of the money, it is taxable.

My question is: Canadian-specific

QUESTION: If you borrow money to invest to earn income the interest you pay is deductible against your income for tax purposes.

What happens if you sell the investments? Can you still claim the interest as a deduction if you do not use the proceeds to pay out the $ you borrowed?

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

You should read Interpretation Bulletin IT-533 for all the CRA's answers.

http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf

However, the rules are:

1.   you have to track the money

2.   You have to pay off the debt or track the new investment if you sell one to buy another.

3.   If you sell for less than you owe, you can continue to deduct interest on the amount that you still owe IF and I say IF you paid off every cent you could from the proceeds of the sale of the investment. 

This does NOT apply if you use 'any' of the proceeds to buy something else. �

QUESTION:

My now-husband is a retired American citizen who moved from Alaska to live with me at the beginning of 2006.  We were married in May 2006.  Although his income is all pensions from US sources, we know that he is required to file both US and Canadian tax returns for 2006, but we are becoming quite frantic at the incorrect and/or conflicting information we have received from both CRA and the IRS.  We even went into an IRS office in Anchorage, Alaska last summer to ask our questions and were told by the person we spoke to, "I am trained in international tax law and I know the answers to your questions, but I'm not allowed to tell you because I'm not working in that area now"!

A CA  friend of mine recommended an accountant in White Rock who supposedly does US/Canadian tax returns.  We contacted her months ago and she agreed to do his returns when the time came, but since then she has stopped returning my many phone calls and e-mails.  My husband has applied for an extension to file his US tax return, but there is no such option available in Canada, and he is accumulating interest and penalties.  The fact that we don't know what his Canadian income will be for the purposes of his tax return has also kept me from filing my own return, although I am due a refund so I assume this isn't a serious problem.

We are seriously concerned about this problem.  In searching the internet today, I was relieved to come across your website.  I spent several hours perusing other people's questions, but I couldn't find anything referring to retired people in our situation.  I'm hoping that we can make an appointment to meet with you or one of your staff to get this problem resolved.

Thank you for whatever help you are able to give us.

xxxxxxxxx
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david ingram replies:

I know Anchorage reasonably well and have been there 8 times after driving the Alaska Highway.  Have friends there with public Television and also in Soldotna, Homer, Wasilla, Palmer and Eagle River in that area.  I expect that you went to the IRS office in Soldotna, not Anchorage but who the heck down here knows where Soldotna is?

But enough of a travelogue.

As a non-resident of the US, your husband has to pay 15% tax to the IRS on any of his company, IRA or 401(K) type pensions.  He does NOT pay tax to the IRS on his US social Security.  He will file a 1040 and exempt the US social Security under Article XVIII (5) of the US / Canada Income Tax Treaty.

It is important to limit the US tax to 15% and it may be necessary to file form 1116 and "resource according to Treaty" the pension income  to limit the tax to 15% because Canada will only allow a tax credit on 15%.  If he has interest from the US, the treaty rate is 10% and if he has dividends, the treaty rate is 15% as well..

Your husband will then covert the amounts to Canadian Dollars and report all of the pensions including the US Social Security on line 115 of his Canadian T1.  He deducts 15% of the Social Security on line 256 of the return.  If he has any interest or dividends, they would go on Schedule 4 of the Candian return and would also be subject to foreign tax credits.

He claims credit for the 15% tax paid to the US by filling in lines 431 and 433 (and completing the calculation) on schedule 1 of the Canadian T1.  If he does not get full credit from this calculation, he can fill in the provincial foreign tax credit and get the balance.

I / We would be happy to assist you. 

QUESTION:

I am Canadian citizen who also has US citizenship. I live and work in the US. I am about to inherit some money from the passing of my Cdn grandmother. I understand there is no tax implication for me in Canada. Do I have to declare anything on my US taxes for the inheritance?
______________________________________________----
david ingram replies:

If the money is held for a while before you get it (usually happens), there will be interest paid on the money. Canada will want 10% tax on the interest and you will have to report it again on schedule B of your US return (just the interest, not the inheritance). Claim the 10% tax withheld on form 1116 of you r US return.