The problems of crossing the border while waiting for the resident alien / green card - expatriate - transborder immigration

here is my question

dear taxman
I am a Canadian living in bc and will be moving to Florida in 2 years for a corporate sponsored greencard(xxxxxxxxxxxxx).the requirement is that I stay for at least a year to receive the green card.it is not a scam as many of my old co-workers have gone thru the system and received their green cards.as noted,I wish to do the same.I do not wish to sell any of my properties here in Canada,nor my house.I have a wife and 2 children who may wish to stay in Canada for about 6 months per year or less depending on the tax implications.do I need to give up my house in bc,or can I work and continue to work in the US,while my family stays here for a fair bit of time?likewise does this change my residency status?
Is it possible to have a family that spends most of its time in Canada and for me to live and work most of my time in the US and still maintain my green card?Ideally,after receiving the greencard,I would like to continue working in the US,and still have my house here.Is there a way of doing this?thanks for your input.as the time gets closer,I will be needing to hire a good taxman.
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david ingram replies:

Your question was by-passed because of the shear number of questions. Your name was added to the list because that way, your question will get answered eventually but I am about 200 questions behind right now. However, by asking twice and seeing that the question has an intereting twist to it.

Interestingly, the question I answeredd before this also quoted Article IV of the US / Canada tax treaty which will govern your taxes.

I am going to repeat ARTICLE IV here again. and then comment after it:

CANADA / UNITED STATES INCOME TAX TREATY 1980

Article IV - Fiscal Domicile - (it is the same number in most treaties)

For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of that person's domicile, residence, citizenship, place of management, place of incorporation or any other criterion of a similar nature, but in the case of an estate or trust, only to the extent that income derived by the estate or trust is liable to tax in that State, either in its hands or in the hands of its beneficiaries. For the purposes of this paragraph, a person who is not a resident of Canada under this paragraph and who is a United States citizen or alien admitted to the United States for permanent residence (a "green card" holder) is a resident of the United States only if the individual has a substantial presence, permanent home or habitual abode in the United states and that individual's personal and economic relations are closer to the United states than any other third State. The term "resident" of a Contracting State is understood to include:

(a) the Government of that State or a political subdivision or local authority thereof or any agency or instrumentality of any such government, subdivision or authority, and

(b) (i) A trust, organization or other arrangement that is operated exclusively to administer or provide pension, retirement or employee benefits, and

(ii) A not-for-profit organization that was constituted in that State, and that is, by reason of its nature as such, generally exempt from income taxation in that State.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

In your case, because you will have a green card and be spending significant tiome in the US, you will be considered a residnet of the US for tax purposes. However, because you are also spending time in Canada and your wife and children and properties are here, Canada will want to tax you as well.

Presumably, you will rent or buy a place in Florida.

Article 2 a) will note that you have a permanent home available to you in both places. It wil lthen look at your personal and economic interests. Becvause you have significant asets in Canada and your family is here, that will settle it. The US will tax you on your American Income and Canada will tax you on your World incoem including the Florida income. Canada will allow you a foreign tax credit fo rthe taxes you have paid to the US so there will NOT be double taxation but there will be Canadian taxation.

On the other hand, if you rented (not sold) all your Canadian Properties on a long term basis, and took your wife and children with you, you would only be taxed in Canada on your Canadian rents and on your world income in the US, AND, your wife and children would get green cards and you could all get US citizenship which could / would be a tremendous asset to your children in the future..

Goto www.centa.com and read the US / Canada Taxation section in total.

Before you do any of this, you ned to sit down with someone like myself. Your spouse should be part of the meeting as well.

I do phone consultations as well. The kind of consultation you need for thjis would run from $350 to $700 in person or by phone.

And the answer is that if you sp[end enough time in the US and make your home there more than six months of the year, you can maintain your green card and your Canadian residence as well. However, you will not qualify for BC medical becaus eyou have to sleep in BC for more than 183 days a year to qualify for BC medical and you have to be in teh US for more than 183 days in a year to maintain your green card.

tax consultation/request

Hi david

I am Jurock Insider subscriber and read your tax tips on the Jurock site
regularly.

I am looking for an expert on UK/Canada tax law regarding selling a property
in the UK and transferring the money to Canada while minimizing my Capital
Gains.

I am a realtor and invest in real estate on the side.

If you have knowledge regarding UK/Canada tax issues how do you charge for
consultation etc and if you don't do this aspect of taxation then perhaps
you can recommend someone experienced in this respect. I would need to
consult on this issue in the next two weeks no later.

Regards

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david ingram replies:

I do not consider myself a particular specialist but tried typing income tax expert UK Canada real estate into google and came up number one so I should at least try.

Great Britain has an indexation (inflation) exemption from 1982 to 1998 and then starts a tapering program to tax the profit.

Canada is simple in return. At the moment, we tax 50% of the profit at your highest marginal tax bracket.

You would pay tax to the UK first and then report the income again on your Canadian return and claim a foreign tax credit for the tax paid to Great Britain. Essentially, you would be paying whatever tax was highest.

Transferring the funds to Canada is best done with a bank to bank electronic transfer.

Hope it helps.

david ingram

US Citizen / Canadian Resident

QUESTION:

If I made 100k in CAnada for 2006 tax year and am a US Citizen, what forms do I have to file for the US? Is it better to take a credit or apply for a foreign tax deduction? Also, am I supposed to have my T1 attached to the US 1040?

Thanks

david ingram replies

If you have children, file form 1116 because that leaves you eleigible for up to $1,000 child tax benefit per child from the US even if you have no US income.

If no children, form 2555 is easier.

If filing form 1116, attach a copy of the Canadian T1 to the 1040.

goto www.centa.com and read the Oct 1995 newsletter in the top left hand box and the "US/Canada Tax" section in the second box down on the right hand side.

TN1 Canadian in the US, sold canadian house and intend to work in US for a few years.

QUESTION:

Hi,

I am a Candadian on a TN1 working in the US since December 4th 2006. This work of mine is going to extend atleast for another two years.

After I moved here (to the US), my wife and son came down on a visit, and we sold our house in Canada on Feb 2007 (this month). We intend to get my wife and son TD status next month.

Given this situation, what is the best way to file taxes. Can you please advise? And how much would it cost us to have you do it?

Thank you
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david ingram replies:

You have clearly departed Canada. You must file a departing Canada tax return including T1161 and maybe 1243 and 1244.

The US returns will be a dual status situation.

Canadians spent 168 days working in California

QUESTION: Hello David,

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.

Tax implications of long-term volunteering/working out of Canada

QUESTION:

I am a retired Canadian woman in my early 50s who is considering volunteering in Honduras (teaching English to disadvantaged children) for an extended period of time. While I am away, my main source of income will be interest income and capital gains on my investments.

In Honduras, I will likely receive room and board and a stipend of approximately $200/month to assist with living expenses.

Does Canada have a tax treaty with Honduras? If so, can you refer me to the relevant government legislation?

Many Canadians live in Canada for 1/2 year and live out-of-country the other half. Are there tax advantages to this?

What are the tax implications if I am out of Canada for an entire year or more and do not have a Canadian address? Are there benefits, to declaring myself a non-resident of Canada? For example, while living out of the country, can I cash out my RSP without paying tax on it?

I do not necessarily need to volunteer in Honduras if there is another country that offers more tax benefits.

Any help/advice will be greatly appreciated. Thanks very much.

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

david ingram replies:

There is no tax treaty with Honduras.

There is no tax advantage to six months in Canada and six months out. The advantage is that by spending 183 nights or more ion your home province, you keep you provincial medical alive. For most of us, the cost of out of country medical without basic coverage is prohibitive. For instance at 65, most Canadians will pay $800 to $1,200 us PER MONTH for medical coverage ou8t of the country i fthey do not belong to a basic provincial medical plan. Ontario only requires you to be in Ontarion for 153 nights a year to remain covered for OHIP and medical.

I am not even going to try and touch this one in any detail. If you truly leave Canada as a resident and take up a bone fide residence in any other country, Canada will tax you 25% on any interest or dividends paid to you in the other country unless you are in a tax treaty country, in which case the Canadian tax on interest will likely be 10% and the Canadian tax on dividends and royalties will likely be 15%.

AND, you will need to buy private medical insurance.unless you are in Australia, England or Sweden where there are national universal health insurance plans.

Over the years I am sure i have had over 100 people who left the country and kept paying their provincial medical premiums or kept the free card and found out to their $100,000 or more dismay that they were not covered when their medical emergency ocurred. The December 1992 issue of Reader's Digest had four such stories as I remember. There is nothing new about this fact but people keep on falling into the false sense of security that they are covered because they have a piece of plastic.

I will compare it to auto insurance. You might have a wonderful car insurance policy with $5,000,000 public liability and $100 deductible for collision. However, if you are in anb accident and have been drinking, your car insurance is null and void.

If you do become a resident of "any" other country, you will pay 25% tax on any lump sum withdrawal from your RRSP. At one time, the tax treaties with Spain and Holland and a couple of other countries did allow you to take out your RRSP tax free from Canada but those situations no longer exist for any place that I know. If yiou are in most tax treaty countries today, the withholding on a monthly annuity or RRIF paymnet from your RRSP is 15% and 25% if you are not in a tax treaty country.

Honduras is as good as any country for your purpose. The Island of Roatan is particularly nice when there are no hurricanes expected.

Filing back US tax forms

QUESTION:

David, I am in a predicament. I have lived in Canada for three decades. I am
a dual US/Canadian citizen. I have faithfully filed forms 1040 and 2555EZ
every year. I have never had earned income beyond the exemption amount. No
US income, other than the odd short-term stock investment (with very little
gain). I have RRSPs (no withdrawals other than home-buyers plan, which was
repaid). However, I now realize I have made a few mistakes. I have never
filed RRSP information, nor I have I filed dividend, capital gains, or
interest information. I am not wealthy, and I am reasonably sure I would
have $0 tax liability for any of those amounts earned. Should I go back and
re-file all those forms (1116, 8891, the murky situation before 8891,
8833[?], every other ridiculous form out there), and how far back? 3 years?
7 years? Or is there another way? I must admit that I'm considering
renunciation, though I wonder if that could cause more problems -- such as
an audit or penalties. (I have also never filed TDF 90-22.1, though I plan
to do so right away.)

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

File the 8891 forms for 2005 with a 1040X and then file the current ones
with your 2006 return.

Note that the TDF forms do NOT go with the tax return. They go to Detroit,
Michigan.

The 8891 accepts that you may not have been doing the forms and asks if you
want to start now.

Tax Free Fellowships and scholarships in Canada

QUESTION: Hello

My Name is XXXXXXXXXXX I ama post doctoral fellow I was wondering whether you would be able to
clarify my questions regarding my taxes.

83% of my salary paid vis PDF full time post doctoral fellowship and
the rest is paid from my supervisor's research grant. My question are

1) Is my full time fellowship (83% of my salary) is taxable income? I heard
fellowships and scholarships are not taxable from July,2006. Is this new
rule is applied to post docs also?

Thank you for your time.

=================================================================
david ingram replies:

The new pamphlet P105 which you can read at http://www.cra-arc.gc.ca/E/pub/tg/p105/README.html

states that under proposed legislation, a fellowship is tax free if the recipient is a full or part-time student eligible for an education amount on Schedule 11.
==============================

Scholarships, fellowships, bursaries, study grants, and artists' project grants
Previously, if tyou received any amounts (other than an artist's project grant) for a program for which you could claim the education amount, you totalled the amounts received and reported as income on your return on line 130 only the part of the total of all amounts that was more than $3,000.

Under proposed legislation, the full amount of scholarships, fellowships, or bursaries that are received by you as a student with respect to your enrolment in a program that entitles you to claim the education amount are not taxable and are no longer reported as income on your tax return.

If you are not eligible for the education amount, report on line 130 only the amount that is more than $500.

Top of page
Artist project grants
If you received an artist's project grant that you used in producing a literary, dramatic, musical, or artistic work, you can claim an exemption or your expenses, whichever you prefer.

If you claim the exemption, total all the amounts you received in the year (box 28 of your T4A slips) and report the amount that exceeds $500 on line 130 of your return.

If you claim expenses, total all the amounts you received in the year (box 28 of your T4A slips) and report the amount that exceeds your expenses on line 130 of your return. Attach a list of the expenses to your return.

The exemption or expenses you claim cannot be more than the grant. In addition, you cannot claim:

personal living expenses while at your usual place of residence;
* expenses for which you can be reimbursed; or
* expenses that otherwise are deductible when you calculate your income for the year.
*
For more information, see Interpretation Bulletin IT-75, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance.

Research grants
Subtract your expenses from the grant you received and include the net amount on line 104 of your return. Your expenses cannot be more than your grant.

Expenses you can claim include:

travelling expenses, including all amounts for meals and lodging while away from home in the course of your research work;
* fees paid to assistants; and
* the cost of equipment, fees, and laboratory charges.
*
Expenses you cannot claim include:

personal and living expenses (other than the travelling expenses mentioned above);
* expenses that have been reimbursed, except when the amount reimbursed is included in the grant received;
* expenses that otherwise are deductible when you calculate your income for the year;
* expenses that are unreasonable under the circumstances; and
* expenses paid for you by a university, hospital, or similar institution.
*
Attach to your return a list of your expenses. Do not attach the receipts, but keep them in case we ask to see them.

For more information, see Interpretation Bulletin IT-75, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance.

401K to IRA to RRSP

QUESTION:

I am a Canadian and have a PhD in Biomechanics. I have recently been offered a faculty position in the US. The University has a great 401K program and I am interested to know what I can do with this if I decide to return to Canada in the next 5-10 years.

Thanks,

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david ingram replies:

You can leave the 401(K) behind and start taking a pension at 65.

OR

(not recommended) you can even roll it over to an IRA and then cash in the IRA, pay the US tax, roll the gross IRA into an RRSP and claim a foreign tax credit after reporting the IRA as taxable income on your Canadian return and ending up with an approximate tax wash with the 401(K) corpus now ensconced in a Canadian RRSP.

Dual citizen with RRSP wants to move back to USA

QUESTION: I'm a citizen of the US and Canada. I was born in the US to an American and Canadian parent and have been in Canada as PR for around five years since my mid 20s. I have been contributing to RRSPs as a tax shelter for a portion of those years. Currently, I have around $50k CDN in RSPs. There is a strong potential as I may end up returning to the US to work and live in the upcoming years.

Is leaving the money I invested in RRSPs the only real way not to take too big of a hit for withdrawal of the money. Ideally, if I could wave a magic wand, I would slide the money into a 401K and not have a hit at all. I know that isn't a real posibility. Is there a way to minimize the impact. I'm trying to find a way not to feel like the beginnings of the retirement savings I've started may not have been a wasteful one.

Thanks,

Shane

===========================================================
david ingram replies:

I hope and trust that you have been filing your US returns every year while living in Canada. You have a bigger responsibility to file te US returns than you do a Canadian return.

As an example -

If you were earning $100,000 Canadian per year as an employee, your employer would or should have deducted about $28,500 and depending upon the province you live in, your Canadian tax (no RRSP, no union and no other dedcutions) would be about $28,000 and you would get back $500 or so as a refund.

The fact is that there is no legal requirement for you to file a Canadian Tax Return becasue you do not owe tax. Canda can request and / or demand a return from you but unless they do, you do NOT HAVE TO FILE in Canada.

HOWEVER, you are a US citizen and must file a US return no matter where you live and no matter what currency you are paid in. The $100,000 Canadian is about $88,000 US in 2006 and the tax (single - no mortgage interest, etc) owing to the US at this point is $16,613. US or $18,840 Cdn. And, you do owe the tax UNLESS you file a return and claim a foreign tax credit on form 1116 or an up to $82,400 earned income exemption on form 2555.

In addition, you must file Form TDF 90.22.1 to report the RRSPS and any other financial accouints in Canada (or France or Germany) or face a possible fine of up to $500,000 plus 5 years in jail and form(s) 8891 to report the internal earnings of the $50,000 of RRSPs or face fines of 35% of the $50,000 in the RRSP PLUS 5% per year for every year you fail to report it (them).

Goto www.centa.com and read the Oct 1995 Newsletter (top left hand box) for details of what you have to report to the US as a US citizen living in Canada and then go to www.centa.com and read the US/Canada Taxation section in the second box down on the right hand side. This particular section is downloaded some 300 trimes a day from our web site.

If you had moved back to the US six years ago, you would have (on average) 70 percent MORE money in your Canadian RRSP than you would have if you had managed to move it to an IRA or 401(K). This is because the Canadian dollar has gained some 35% in value relative to the US diollar and the Canadian stock market also outperformed the US market for most of that time as well.

There is no guarantee that the same thing will happen in the future but if you "do" return to or move to the US, I suggest you leave the RRSP in Canada and start new savings in the US.

If you "do" decide you want the money in the US, you can withdraw the RRSP from Canada and pay 25% tax to Canada as a non-resident. Becasue you only have $50,000 in teh RRSP, you copul dlikely roll it into some sort of tax sheltered plan in the US by taking out $10,000 a year, paying the tax to Canada and then depositing the same amount o your US plan (because you have it available). It would take six or seven years but if you could set up some sort of private pension plan or even participate in a larger way in a company 401(K) because the money is available.

If you have not being filing your US returns (bet you have not) and you want help with them, that is what we do by fax, email (pdf files only), snailmail or courier.

I personally have 44 years experience in US Canada tax and have three associates with significant experience as well.

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The problems of crossing the border while waiting for the resident alien / green card - expatriate - transborder immigration

tax consultation/request

US Citizen / Canadian Resident

TN1 Canadian in the US, sold canadian house and intend to work in US for a few years.

Canadians spent 168 days working in California

Tax implications of long-term volunteering/working out of Canada

Filing back US tax forms

Tax Free Fellowships and scholarships in Canada

401K to IRA to RRSP

Dual citizen with RRSP wants to move back to USA

Monday 06-Dec

Sunday 05-Dec

Friday 15-Oct

Wednesday 15-Sep

Tuesday 14-Sep