U.S. / Canadian Taxes - Spouse and childrehn in - Factual Resident - Article IV -

In 2005 I was living in Ontario, Canada and joined a U.S. company.  I continued to live in Canada through July of this year.  I seem to have significant tax “issues”.  Partly because I know the IRS does not withhold as much tax as Revenue Canada requires (I knew I would owe) and secondly, because I am not an expert tax preparer and I should have gone to the experts.  Revenue Canada has now completely disallowed my tax payments to the IRS as a foreign tax credit and are claiming I owe them a fairly significant chunk of money.

I think I need to go back and have a professional do my 2005 U.S. returns, which I never did.  I also will need some help/support with Revenue Canada to make sure that I get my foreign tax credit for the monies paid.  I will also have a professional prepare my 2007 return when the time comes because in this year, I have actually become a resident alien.  I am working and living in Pennsylvania now under and H1-B.

Can you help?

I will need an estimate of costs – I do not have a large budget but thought I would start by asking

My returns are not difficult at all.  I have simple income/deductions from a T4 and W2 in 2005 and just a W2 in 2006.  I have some charitable donations and that’s about it.  Pretty simple returns (I think).  My wife does not work, and I have two kids, aged 11 and 7.

Please advise if you can help.

Thanks in advance,

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

1.   What you are asking for is what we do.  I can not tell if you  were physically working in the USA in 2005, 2006 and up to July 2007 and commuting or if you were telecommuting and working in Canada.  It is also different if you had a spouse and children in Canada or if you were in the US for most of the time and just kept your old house in Canada while waiting for the issuuance of the H1B, etc.  In other words, if you were in the USA most of the time and came back to Canada sporadically,you may still have had ties to Canada but are not necessarily 'living' in Canada for tax purposes under Article IV of the US/Canada Income Tax Convention.  You may be a FACTUAL Resident exemopt from Canadian Tax under Article IV of the Treaty.

And, if you were not sleeping in Ontario 153 nights a year, you did not qualify for OHIP.  If you did not qualify for OHIP in 2006 for instance, it is not reasonable that you should be taxable in Ontario but having a wife and two children in Ontario guarantees that  the CRA will try and tax you.  However, if your intention was to move and your wife and children were only remaining in Canda until the house sold or until your wife finished a course at Ryerson or something specific, you may not be taxabvle in Canada.

2.   In general, I quote $900 to $3,000 for a US / Canada income tax return and there is more clarity below.  Fixing something generally costs more than preparation in the first place if both countries are invcolved.  If your US return is correct, you are likely looking at $500 or $600 as a minimum and $1,000 to $1,200 as a high to repair the Canadian return.

You should go to www.centa.com and read the US/CANADA Income TAX section in the second box down on the right hand side.

Pay attention to the Wolf Bergelt Case where he was not taxed in Canada when he moved to the US even though his wife and four children were still living back in Ottawa.  You will find this in just about the exact middle of the section. And, on the other hand, David McLean was taxed when he came back after 7 years in saudi Arabia.  It is important to recognize the differences between living in a treaty and a non-treaty country.
------------------------------------------------------------------------