Can we consider ourselves as California nonresidents for California tax purposes?

My husband and I are Canadians. In January 2006, we went to California because of my new job offer; I was on TN visa and my husband was on TD visa. After a few months we decided to come back to Canada. We came back in June, after 168 days in California. I still work for the same California employer, but my contract was changed to have me work from Canada (I am now paid in Canadian $ through a Canadian payroll, and I have Canadian taxes deducted).

Before 2006, we never lived in California.

We have read through Publication 1031 back and forth, but it did not help us...

Thank you,


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david ingram replies:

As described, you are residents of Canada and your US income must be reported on your Canadian Tax return.

You will file a 1040NR and a California 540NR with schedule CA(NR) attached.

Then you will add up the US Federal Tax plus the US FICA plus the US MEDICARE plus the California income tax and claim those taxes as a foreign tax credit on line 431of your Canadian T1 return. You should get a dollar for dollar reduction in your Canadian income taxes for the taxes paid to the US and California.

You will have a heck of a time finding anyone locally to prepare the returns. We would, of course, be pleased to look after them for you by fax, snail mail, email or courier. That is what we do.

Hi! I worked in Canada till May 2006 and from June to Sept 2006, I worked in US on TN visa. I returned back in October and worked in Canada. How do I file taxes in both the countries?
Thanks in advance.

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david ingram replies:

You will file a US 1040 and whatever state return for the state you worked in (California would be a 540NR, Michigan would be a MI1040NR as examples)

You will report the US earnings on line 104 of your Canadian return and claim credit for the taxes paid to the US on line 431 of Schedule 1 of your Canadian return. If there is any foreign tax left over, you can claim it on the equivalent line on your provincial 428 form.

Hello,
A quick note to tell you that I really appreciate the help you are giving to people.

You mentioned somewhere that one could use their RRSP money to finance a mortgage to themselve.
Could you tell me more about this?
I am in the process of buying a revenue property and wonder if this would apply.

Thank you

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david ingram replies:

I have never written favourably about it and do NOT recommend the process.

QUESTION:

I am a retired airline pilot of U.S. Air. As an American/Canadian resident of Canada, but employed in the U.S. I contributed to a company 401K (now converted to an IRA). As a U.S. citizen, I realize any withdrawals from my U.S. IRA will be taxed as ordinary income by the United States. However, as a Canadian resident, Canada always insisted on taxing me on my U.S. gross income and not on the net less the 401K contributions. This is as allowed in the U.S. Does Canada, who have already taxed me on money going into my 401K plan, have the right to tax me on the withdrawals as well? I have heard they do, but that being the case this sounds like very punitive double taxation to me.
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david ingram replies:

It is double taxation and it is a total miscarriage of justice in my opinion. Everyone should write their Member of Parliament and tell them to change the law.

It is why I tell everyone in your position to opt out of the voluntary payment into your 401(K). We have also been successful in getting the US employers to allow their employees to show the same amount contributed to an RRSP (and deductible in Canada) to satisfy their contribution requirements.

What do you know about filing a return that says that Income Tax is Illegal.
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david ingram replies:

Not an awful lot. I stay away from Corporation Sole and other tax free claims that keep on arising in the Unitesd States and Canada and I presume ion other countries as well although i have never heard of a Mexican or English, Australian or new Zealand claim. However, if you do file a return and make such a claim, it is called a frivolous return and on Mar 15, 2007, the penalties went from $500 to $5,000 according to IR 2007-61 which I have reproduced below.

They list 40 or so things that can get you the $5,000 fine so you might want to take a look. If one 'pursues' the frivolous claim in court, the penalty goes to $25,000.

Hi,
I want to move from USA to Canada in June end.I am on H1b visa in USA and immigrating to Canada.I want to work for my current US employer from canada(I will work from home).
How do I do this?
How do I handle taxes for US and Canada(I assume that I will pay tax to USA till June 2006 and then canadian tax for July onwards)?
Can I show my apartment rent or part of mortgage amount as business expense as I will be working from
home?

Thanks

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david ingram replies:

Right on -- US until June and Canada following.
If you have a separate room set up for an office, you are entitled to an office in the home which you will find as a form as part of Canadian form T2032.

If you are working in the middle of your living room as i am doing right now and where I work 30% of my time, you can NOT deduct and dual use space. Dual use means that you use it for personal or family purposes as well as business.

My_question_is: Applicable to both US and Canada
Subject: Obtaining a Canadian passport
Expert: [email protected]
Date: Tuesday February 06, 2007
Time: 10:22 PM -0500

QUESTION:

I was born in Canada in 1938 of U.S.citizens (and not residents of Canada) and have lived all my life in the U.S. except for the first week(s) after my birth. Would I be eligible for a Canadian passport since I was born there?
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david ingram replies:

The answer is no although you were a Canadian citizen until age 24. Up until 1977, Canada did not recognize dual citizenship. You would usually declare yourself to be Canadian around age 21. The subject would never have come up if you were living in the USA.

The silly part is that if you had declared yourself to be Canadian at the time, the US "did" retroactively restore your US citizenship without question. At the moment, there are over 1,000,000 people in your position and it has been receiving a lot of press lately.

There was even an article by Alan Ferguson about a similar situation involving "war babies" in The Vancouver PROVINCE newspaper today.
I am taking the liberty of reproducing it here with credit to Alan and the Province clearly shown. You can see it at the Province site at http://www.canada.com/theprovince/columnists/story.html?id=463f613a-c485-4b1c-ac42-bd899fed59b6

Let's finally give these Canadians the citizenship rights they richly deserve

Alan Ferguson, Special to The Province
Published: Tuesday, February 06, 2007
Canada's "war babes" can't believe the amount of time and money the federal government is spending to deny them their rights.

Their latest setback came last week, when government lawyers filed a 32-page appeal against a judgment they thought would end their years of isolation.

As I wrote last week, in the summer of 2006 a Federal Court judge in Vancouver delivered a blistering condemnation of the treatment of Canada's war babies.

The verdict, which ordered the government to restore the citizenship of war baby Joe Taylor, promised a long-delayed resolution to many similar cases across Canada.

But the federal bureaucracy -- blind, it seems to me, to the misery it is inflicting -- is a runaway bulldozer crushing everything in its path.

In last week's appeal, the lawyers make the audacious claim that Mr. Justice Luc Martineau erred in law on just about every conceivable point. That's not all. They say that, if the appeal fails, Immigration Minister Diane Finley is demanding the court not implement the Martineau decision until it can be taken all the way to the Supreme Court of Canada.

Who is it that the government is so afraid of that it is determined to go to such lengths? They are mostly people like registered nurse Sheila Walshe, now 63, who lives in Westbank, near Kelowna, with Jim, her husband of 46 years.

Sheila is the British-born child of a Canadian soldier who met and married while serving in England in 1941.

Sheila and her mom arrived in Halifax aboard the Queen Mary in May, 1946, proud to be admitted as Canadians -- a "fact" of citizenship Sheila never doubted.

When her parents' marriage failed, her mom took her back to England, telling her daughter her father had "died." Sheila was "distraught," but never questioned it, until, in 1991, she learned that her father was, in fact, alive, living in Surrey.

"I was elated. It was the highest high you can imagine. I was as happy as a child again," she says.

Sheila quickly applied for a passport. But officials told her she had surrendered her citizenship by not reaffirming it before her 24th birthday. It is a provision, now off the books, that Martineau in his court decision found offensive to human rights.

Sheila and her husband came to Canada anyway. They've been here 15 years. Officially, they're visitors, unable to work, though Sheila would like to take up respite care.

"I could have done something for Canada all these years. But they made me into a nothing, a non-person," she says.

People like Walshe are being forced to struggle for recognition in a country for which their fathers were prepared to make the ultimate sacrifice, and often did.

In 2005, Walshe testified before a committee of MPs in Vancouver.

"I long for recognition of my Canadian-ness," she said. "Please help me." Isn't anybody in Ottawa listening?

-- [email protected]

© The Vancouver Province 2007

You can see that you fit into the same general genre and you might want to contact Alan to add your voice to his database. The more publicity the better. His email is [email protected].

If you did want to immigrate to Canada however, you get your citizenship after just one year of residence rather than the usual 3 years.

QUESTION: Hi David,

I am a Permanent Resident in Canada and recently I have a job offer from an
american company to work in Canada as their representative. Can I take up
this assignment? Will there be any problems in doing so?.
Thanks,

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david ingram replies:

You can take the job in Canada with no restrictions if you are a permanent
resident.

However, your wording and syntax indicates that you are likely a US citizen.
Make sure that you are NOT paid on a W-2 basis.

The US company has to either:

1. Set up a Canadian Payroll Account (using a payroll service like the CIBC
payroll service would work).

or

2. Pay you as a self employed contractor and issue a 1099.

Number 2 is the likely the easiest for everybody if you are the only
Canadian person involved.
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The following older question is not specific to you if you are a US citizen
because you will still have to file a US return (but not likely be taxable
because of foreign tax credits). However the 1099 part does apply to your
situation
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My_question_is: Applicable to both US and Canada
Subject: Dual Tax
Expert: [email protected]
Date: Sunday January 28, 2007
Time: 09:01 PM -0500

QUESTION:

Hi

I am permanent resident of Canada. I am getting a job offer from a US based
company. As I am not from US and just completed my 6 years of stay in US on
H1 visa, I will have to work from Canada. However, the company will be able
to pay me in US only. Given this situation, my questions are:

1) Is it legal that I am working from Canada while being paid in US?
2) What are the tax implications ?

Based on these, I will make a decision.

Thanks
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david ingram replies:

First - do NOT expect replies this fast. I was just sitting down to answer
a couple while watching the news and yours came up on top as it arrived.

the answers:

When it comes tax time, there is NO US tax reporting (although the IRS could
ask you to submit a return, if you did it would exempt all income under
Article XIV of the US Canada Tax Treaty).

In Canada, you will pay Federal and provincial taxes and both halves of the
Canada Pension Plan.

specifically

1. I have over 100 clients doing what you are doing. It is perfectly legal.

2. You only want to be paid on a 1099 basis. They should not deduct any US
Federal, State, or other employment taxes such as Social Security and
Medicare. Because of this, your contract pay should include the cash
equivalent of anything they would pay you if you were in the US. That is,
it should pay you your salary PLUS anything that they might be putting into
a 401(K) PLUS their half of Social Security and Medicare (you have to pay
both halves of the equivalent in Canada) and they should pay the cash
equivalent of any payroll benefits such as life insurance and extended
medical and they should build in the equivalent of holiday pay.

Other expenses such as internet, computer, photocopier, supplies and other
expendables can be billed separately.

I leave it to you to ascertain whether car expenses or car allowance should
be included and there should maybe be a payment to you for the use of your
home as an office.

I, of course would be happy to look after your tax returns at that point by
email (PDF files only), snail mail, fax or courier.

Phone consultations are $400 for 15 minutes to 50 minutes (professional
hour). Please note that GST is added if product remains in Canada or a phone
consultation is in Canada.

This is not intended to be definitive but in general I am quoting $800 to
$2,400 for a dual country tax return.

$800 would be one T4 slip one W2 slip one or two interest slips and you
lived in one country only - no self employment or rentals or capital gains -
you did not move into or out of the country in this year.

$1,000 would be the same with one rental

$1,200 would be the same with one business no rental

$1,200 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.

$1,500 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

$2,400 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 $150.00 up.

With a Rental for $350

A Business for $350 - Rental and business likely $450

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 $800 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.

Just a guideline not etched in stone.

QUESTION: I got married to a non american in May 2006 and we still in the
process of changing of status, she is pregnant and she wont be able to get
the the social security and the green card not before the end of the year
2007. Should she have the social security to claim her to my 2006 tax
return, or i can just use the marraige certificate ???

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david ingram replies:

If she does not qualify for a Social Security Number yet, she needs an
ITIN - an Individual Taxpayer Identification Number. Fill out form W-7
http://www.irs.gov/pub/irs-pdf/fw7.pdf.

If her approval comes through before you file, you would get a Social
Security Number on form SS-5 http://www.irs.gov/pub/irs-pdf/fss5.pdf

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With either number, you can file a joint return with her and this
will/should save you significant tax. If she has income in her home
country, then you would claim a foreign tax credit for that tax on form
1116.