My_question_is: Applicable to both US and Canada
Subject: taxation of stock dividends
Expert: [email protected]
Date: Wednesday March 14, 2007
Time: 06:15 PM -0500

QUESTION:

If a single person living in canada owns u.s. stock such as at&t should that person be better off receiving his dividends in the states. THis person resides in canada for more than 183 days a year which means she will be taxed as a canadian. I realise that under canadian taxation there is to be deducted from their percentage consideration of american taxes that are executed in that country (u.s.). There is also a factor of this person's lawyer trying to control her estate from canada. By putting her dividends in a american bank instead of a canadian is this a smart move in that he will not be able to get into her estate as easily. Her dividends are around $10,000 a month and she is taxed at 82% in canada. Is this right?
___________________________________________________________
david ingram replies:

I assume that you are a US citizen living in Canada most of the time and that it is a Canadian lawyer you are talking about.
.
I cannot comment on the situation with your lawyer. However as a non-resident of the USA and a resident of Canada, it does not matter where you have dividends deposited. The dividends and all of your world income are subject to Canadian tax at the marginal tax rate for the province you are living in.

In BC for instance there are 6 marginal tax rates

up to $33,755, you pay 21.3%
from $33,755 to 36,378 you pay 24.509%
from $36,378 to 72,756 you pay 31.185%
from $72,756 to 77,511 you pay 37.7%
from $77,511to 94,121 you pay 39.73%
from $94,121 to 118,285 you pay 40.792%
over $118,285 you pay 43.7%

Please PAY ATTENTION

Going up a tax bracket, does NOT increase the tax you have already paid.

You only pay the higher tax bracket on the next $1.00, not the dollars below.

Every province will be different but:

There is NO SUCH THING as an 82% tax rate in Canada

And, if you had ordinary Canadian Dividends, the tax rate would be half of the amount I have quoted above. In fact, if all you had was $25,000 worth of dividends in Canada, there would be NO tax at all and if you received $100,000 worth of Canadian dividends, the grossed up amount would only have $15,526.07 of tax payable.

And if you had $100,000 of Eligible Canadian Dividends, the tax on $100,000 of eligible dividends in BC is only $9,197.36.
--------------------------------------
Now, if you are an American citizen living in Canada, the maximum tax you will pay to the US is 15% under articles X and XXIV(5)(c) of the US / Canada Tax Treaty.

It is very important to take advantage of this because Canada's CRA will only allow you a tax credit of 15% tax for dividends.

When the tax credit is claimed at the amounts you are suggesting, it is a dollar for dollar deduction from Canadian Tax.

____________________________________

If you are having a problem with your lawyer, you need to deal with and get advice from a lawyer in the province in which you are living. Make sure you find a specialist in the topic you are having a problem with. But, be careful. Advertising a service does NOT automatically mean that the person is really good at that particular topic. Check around for references.

A very good method is to ask the lawyer you are having your difference of opinion for the names of two or three others you could get a second opinion from.

Another method of finding a lawyer is to phone the law society where you live. However, I do not recommend this because (in my opinion) the Law Society personnel will NOT give a recommendation based upon the best but upon who is there.

Now, for the record I spent almost three hours answering this because it was about time I figured out the marginal tax rates for this year and I figured out my own rather than using someone else's .

My_question_is: US-specific
Subject: US Immigration
Expert: [email protected]
Date: Monday March 05, 2007
Time: 05:19 PM -0500

QUESTION:

Hello,
My name is xxxx xxxxxxx - American Citizen. I've been married to my wife for 5 years, she is Canadaian citizen and we have 2 children born in the US. She traveled many times to Canada and returned without any problem but she was denied entry when she tried to come back from last trip. I filed I824 to tranfer her approved I130 application to US consulate in Canada.

Are we going to have any problems with her papers when she is ready for the interview? I really don't have any proof to show that she did not stay in the US less then 180 days at a time because we travel to Buffalo and cross the border by car. INS did not stamp her passport every time she leaves and re-enter the US.

My kids need to come back to school and we are in desparate situation and I don't have money to spend on lawyers. Please, Please advice just for the sake of my honest children.

Sincerly,
_____________________________________________________

david ingram replies:

Sorry, but I am not the person to deal with. Under the circumstances you need a good lawyer, a member of the AILA (American immigration Lawyers Association) or very good luck in dealing with it yourself.

It souimds like she has been in the US for years illegally and Homeland Security does not like that.

Although it sounds like she is/has been returning to Canda every six ,months and then turning around and re-entering, that in itself is not even remotely legal if she sdoes not have a full blown home in Canada. To be a "paperless" visa B1 or B2 visitor to the US, a Canadian MUST have a full blown home in Canada, not just a mailing address or a room at their mother's or brother's home. They need to be able to show their Canadian Income, their Canadian rent or mortgage and tax receipts. They need a phone bill and heat and light bills. They need to be a member of their Canadian medical plan and have their valid Canadian Driver's licence (and not a US one).

The driver's licence is a big item because if they are in the US and driving their husband's US car for instance and are in an accident, if they do not hafve a local valid licence, the insurance can be declared invalid.

They should have copies of all o fthe above plus copies of their Canadian Income Tax return every time they cross the border.

Without al of this, they can be turned back until they can come up with it and that sounds to me to be the case with your wife.

Don't get me wrong. You have my sympathy and my empathy. My aunt who lived in Minneaplolis and who would be over 120 now, lived in the US for forty years doing exactly what your wife has being doing, before she was caught.

You should contact Joe Grasmick at www.grasmick.com or Greg Siskid at www.visalaw.com. Both have extensive experience with Canadian Immigration to the US.

Both are set up to do phone consultations and can follow up later with Homeland Security.. Greg Siskind has an associate office in Toronto.
_______________________________________________________________________________________

My question is: Applicable to both US and Canada

QUESTION: I am currently working in the US on a TN Visa. I have now been working for just over one year. I will need to file my taxes in April but I am confused as to where to file.

Do I need to file in both Cdn and the US? If so, do I end up paying taxes in both countries? I do not own any property in either country.
---------------------------------------------------------------------------
david ingram replies;

You will file a Canadian T1 return showing your date of departure and pro-rating your personal exemption amounts for the number of days you were in Canada. If you did not leave a Home Buyers Plan, a house or mutual funds or other investments behind, that is it for Canada.

If you have left behind any of these items, you will also need to file form T1161 and maybe T1243 and T1244.

If you left behind a rental house, you also need to file forms NR-6 and a T1 to report the rental income after you moved to the US under Section 216(4) of the Canadian Income Tax Act.
____________________________________________
For the US, you will usually file a 1040NR DUAL STATUS STATEMENT and a 1040 DUAL STATUS RETURN which will only report your US earnings and any interest, dividends (sched B), rents (sched E), etc that you may be receiving. If you have a Canadian RRSP, you must also file form 8891 with your 1040. If your RRSP by itself or your RRSP plus other Canadian financial accounts totals more than $10,000, you must also file US Treasury form T D F 90-22.1

You can see all these US forms by going to www.irs.gov.

You would likely do well to send this first dual country return to us as below.

A question I am hoping you will be able to help us with.
>
> My son's fiancee who has been living common law with him for over a year and living in Canada is trying to file her US taxes. She is in the process of applying for her residence status here, which should come through any time now. They have "filed" common law status with the Canadian authorities as of March of the past year and the paperwork was filed in May for her Canadian residency. She has no US income so how does she file her return for 2006 with the US?
>
> If you can help us, it certainly would be appreciated.
>
> Thank you,
> ___________________________________________________
> david ingram replies:
>
> Well, she could send it all to us and we would do it for her and likely charge $800.00 plus GST.
>
> OR,
>
> If she just has one or two T4 slips from Canada, she can goto www.centa.com and read the 'US/Canada Taxation' section in the second box down on the right hand side. She should also read the October 1995 Newsletter which explains the responsibilities of a US citizen living in Canada. She can find that newsletter in the top left hand box on the same page.
>
> I have reproduced part of it here
>
>
>
>
The U.S. taxes on citizenship first and residency or physical presence second. If you have another tax home, and are just an extensive visitor in the States, you can escape U.S. tax on your income from other countries. However, if you renounce your other tax home or become a "green card" holder or are in the U.S. for more than 183 days in one year, you are subject to U.S. income tax on your world income.

The U.S. taxes its citizens and green card holders wherever they are and no matter what they are doing. The U.S. taxes its citizens in Canada and they will tax them in the North Sea. The U.S. will add on the benefit of housing allowances, car allowances, servants, and education allowances for people who have not been in the U.S. for twenty years but who are still U.S. citizens. If you want the benefit of U.S. Citizenship, you pays your taxes.) The first $82,400 U.S. of income earned from personal services (as opposed to capital) is exempt if you have been out of the country for a full calendar year in one test or for 330 out of 365 days in another test using a fiscal year (form 2555).

However, being "exempt" does NOT mean that you do not have to file a tax return. You must still file your U.S. 1040, report the Canadian Earnings in U.S. dollars and claim the "up to $82,400 U.S." by filing a form 2555 with the 1040. If you have investment, [INCLUDING AMOUNTS EARNED WITHIN YOUR CANADIAN RRSP], rental, royalty, or any income other than from services, you must also report the income in U.S. dollars. Since you will have paid tax to Canada first, you will file a Form 1116 with the 1040 to claim your foreign tax credit. A separate Form 1116 must be filed for each kind of income, i.e. rental, pension, dividends, etc.

The RRSP earnings may be exempted under ARTICLE XXIX.5 of the U.S. / CANADA Income Tax Treaty 1980 - file form 8891.

Social security (FICA) taxes usually do not have to be paid to the U.S. under Article XXIX.4 of the U.S./CANADA Income Tax treaty or Article V of the CANADA / U.S. Social Security Agreement. (I sure hope all this is impressing you).

Therefore, a U.S. citizen living in Canada who had a rental house, a job, an RRSP, some dividends and some capital gains from the sale of stock would file his or her Canadian return first and then file a U.S. return with these forms:

* 1040 - is the basic return for a citizen or resident of the U.S. or landed immigrant of the U.S. (commonly called a "green card" holder).

* Schedule A - to claim itemized deductions if needed

* Schedule B - to report the dividend income

* Schedule D - to report the capital gains

* Schedule E - to report the rental income

* 4562 - to report depreciation on the rental house

* 1116 - (maybe two foreign tax credit forms) - one for any income from services over $82,400 - one for the rental, capital gains, and dividend income and another for the wages.

* 1116(AMT) - two more forms to calculate the foreign tax credit for Alternative Minimum Tax purposes (AMT)

* 2555 - to exempt up to $82,400 (2006) U.S. of earnings from services - Note that htis ran from $70,000 to $80,000 before.

* 6251 - Alternative Minimum tax form


* 1161 AMT - AMT foreign tax credit

* FICA (Social Security) exemption - to exempt income from U.S. FICA

* 8891 - RRSP election forms to exempt income earned within the RRSP from current U.S. income tax until withdrawal

* TDF 90-22.1 form(s) - to report foreign bank accounts including Canadian RRSP accounts which are considered "foreign trusts" - failure to file this form can result in up to a $500,000 fine PLUS up to five years in jail

He or she might also have to file either of the following two specialty forms when he or she owns shares in corporations.

* 5471 form - If you are a U.S. citizen and 5% or more owner of a Canadian corporation. Failure to file this form can create fines of $10,000 every 30 days up to $50,000

* 5472 form - If you are a Canadian who owns a U.S. corporation - failure to file this one has fines of up to $30,000 every 30 days.

My_question_is: Canadian-specific
Subject: Mortgage Interest or other.
Expert: [email protected]
Date: Saturday March 17, 2007
Time: 02:10 PM -0500

QUESTION:

Is their a way I can claim the Interest on my Mortgage. I have been Disabled for the Past year and a half due to Cancer Treatment. I have claimed all the other medical expenses last year. I hope to return to work soon, but as of now I owe $1800.00+. Are their any other deductions I am not aware of that I can also deduct.
Thanks Ron Beausejour

_______________________________________________________________________-

david ingram replies:


Yes it is possible but you have to work at it. Read the following older answer.

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


My question is: Canadian-specific

QUESTION:
What date is the archive in Centapede for turning home mortgage interest
tax deductible
There was a book written about it also Who was the author?

Thanks I very much enjoy your column

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

The first treatise on making Canadian mortgage interest deductible ever written
that I know of was written by me and published by the North Shore Credit Union
in the North Shore News in November 1976 and has been updated many times.
You can read the latest version in my Nov 2001 Newsletter in the top left
hand box at www.centa.com.

Fraser Smith wrote a book called the SMITH MANOEUVRE in 1985. It should be
available at any book store or you can check out his website at
http://www.smithman.net/frasersmith.html

If you are in Greater Vancouver, you can attend one of Fred Snyder's Free
Thursday Seminars and /or listen to him every Sunday Morning at 9:00 AM on
www.600am.com or see him at 10:30 AM every Sunday morning on NOW TV, channel
10.

If you are on the island, Fred's associate, Ralph Hahmann also gives free
seminars on the subject at his Dundee Wealth Management office on McKenzie
Street in Victoria on Tuesday evenings. Call Ralph at (250) 472-0700.

Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one
of 17 different financial seminars in the boardroom of his office

Time: 7:00 to 9:30 PM
Date: Every Thursday evening
Place 1764 West Seventh
Vancouver (corner of Burrard)

Phone (604) 731-8900 to register

No cost - no obligation

Topics always cover mortgage interest as a deduction

other topics - getting the mortgage, estate planning, critical care
insurance, income taxation, differences between stocks and bonds, and
usually the most innovative HELOC mortgage offered in Canada from Manulife
Bank

If you are starting in downtown Vancouver and do not want to go home first,
one of the excellent THAI HOUSE restaurants is in the same building and
makes a nice start to the evening. If it is your first seminar, Fred will
buy you dinner if you are pre-registered.

I, david ingram, am sometimes at the Thursday evening following the last
Sunday of each month to cover mortgage interest as a deduction and give the
class an adding test.

xxxx wrote:
Dear Mr. Ingram,

I'm a citizen of the U.S. & Canada with a house in Michigan and one in Ontario. My legal residence is currently Michigan, but I will be changing it to Ontario when I retire, while keeping the Michigan house. My sources of income when I become a legal resident of Canada will be Social Security and my taxable investments (all in U.S.), currently bringing in about $30,000 U.S. per year in interest & dividends. (I also have an IRA, but I'm not withdrawing from it yet.) I need this interest income to live on, so I hope that I won't be hit too hard by bringing it within the sphere of the Canadian tax system. My questions are:

1. I assume that once I start living in Ontario the majority of the time (over 180 days), I would file as a Canadian resident first and report my world income, including investment income. I would then claim a credit on what I pay the U.S & Michigan, if anything. I would then file a U.S. return and claim a credit for tax paid to Canada. Is this correct?

2. As a part time resident of Michigan, legal resident of Ontario, do I need to file a Michigan return at all, if I have no income there? If I do need to file, is it as a resident or non-resident?

3. Is there any requirement that I change my address from U.S. to Canada for such things as bank accounts, Social Security, etc? In other words, does it matter to the U.S. or Canada that my U.S. sources of income will think I'm in the U.S. (which I will be part time), so long as I report the income to both countries?

Sincerely,

John Lacombe



david ingram replies:

Having just attempted to wake my 15 year old daughter up to go to school on the first day of spring break, I am not sure if I am capable of answering this question

I am also interested in anyone else's comment on this because it is a good question. If you were a dual citizen and lived in Ontario and bought a hunting cabin in Michigan and stayed there 3 months of the year, you would not be a part-time or resident of Michigan. However, if you are now a resident of Michigan and are going to spend more time in Ontario, it seems to me quite clear that Michigan will want to consider you to be a part-time resident when you are keeping and staying in the same house, etc. You should take a look at Michigan form 1040 and the NR schedule.

So then the next point likely involves the time in both places. I do not think you are moving for seasonal benefits. Parts of Ontario are south of the Northern part of Michigan. I assume you are moving to take adavatage of Canadian medical or to be closer to children or grandchildren.

So if you are going to spend 2 months in Michigan, I would say you are not a part year resident and have no Michigan tax liability other than your property taxes. 'However', you mention 180 days. If your intention is to spend 190 days in Ontario and 175 days in Michigan, I have no doubt that you are a part year resident and taxable in Michigan on the percentage of your income that you receive while in Michigan. This could even change on a year by year basis.

As to your US / Canada taxes, you have to look at Article IV of the US / Canada Income Tax Convention (Treaty) - Article IV reads as follows: (you are concerned mostly with 2(s) (b)(c) and (d))


Article IV
Residence
1. For the purposes of this Convention, the term "resident" of a Contracting State means any person that, under the laws of that State, is liable to tax 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, an individual who is not a resident of Canada under this paragraph and who is a United States citizen or an 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 to any 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 States or in neither State, 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, 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 States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

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


3. Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then if it was created under the laws in force in a Contracting State, it shall be deemed to be a resident of that State. Notwithstanding the preceding sentence, a company that was created in a Contracting State, that is a resident of both Contracting States and that is continued at any time in the other Contracting State in accordance with the corporate law in that other State shall be deemed while it is so continued to be a resident of that other State.

4. Where by reason of the provisions of paragraph 1 an estate, trust or other person (other than an individual or a company) is a resident of both Contracting States, the competent authorities of the States shall by mutual agreement endeavor to settle the question and to determine the mode of application of the Convention to such person.

5. Notwithstanding the provisions of the preceding paragraphs, an individual shall be deemed to be a resident of a Contracting State if:

(a) the individual is an employee of that State or of a political subdivision, local authority or instrumentality thereof rendering services in the discharge of functions or a governmental nature in the other Contracting State or in a third State; and

(b) the individual is subjected in the first-mentioned State to similar obligations in respect of taxes on income as are residents of the first-mentioned State.


The spouse and dependent children residing with such an individual and meeting the requirements of subparagraph (b) above shall also be deemed to be residents of the first-mentioned State.

---------------------------------
What the treaty says is that you are only taxable in one country on your world income but you are taxable in the source country on any income from that source.

With your large interest and pension income, you will also be concerned with Articles X, XI, XVIII, XXIV (4) and (5)

You can read the whole treaty at http://www.fin.gc.ca/treaties/USA_e.html
_______________________________________

I am very interested if anyone (Andrew, Gary, George) has a contrary opinion about my Michigan residencey comment.

My_question_is: Canadian-specific
Subject: Capital gain/Principle residence
Expert: [email protected]
Date: Sunday March 18, 2007
Time: 02:03 AM -0500

QUESTION:

Hi,
I had purchased a house in jan 2006 for my personal residence and started doing some repairs before we could move in the property but in the meantime my wife lost her job and therefore made extermly dificult for us to hold the house based on my income alone.

We sold the house in April,2006 for a gain,since property prices had gone up by then.
My question is
1.Can i claim principle residence exemption on this house since this was only proprty we owned in this year,no other proprty owned by both of us(husband and wife)

2.If not,what will be the taxes on a capital gain of 70000?

Best regards

_______________________________________________________
david ingram replies:

If you did not move into it but can prove that you intended to, it is subject to capital gains tax on 1/2 of the profit. If you had something like a builder's mortgage on it, the CRA will not believe you and want to tax you on all of the profit.

If you did not move in, it can NOT be a tax free principal residence because you did not ordinarily inhabit it.

The 70,000 is cut in half and only $35,000 is taxed if it is in both names. Then you would presumably cut the $35,000 in half and you would report $17,500 and your wife would report $17,500. The tax at that point would range from 23% if your wife's income was less than $35,000 for the year to over 43% if your other income was over $120,000

My_question_is: Canadian-specific
Subject: Personal Income Tax
Expert: [email protected]
Date: Monday March 19, 2007
Time: 08:30 PM -0500

QUESTION:

Can a married person file as single?
_________________________________
david ingram replies:

NO - if the married person is not living with their spouse they would be separated or divorced or widowed. Once married, you are no longer single.

My question is: Canadian-specific

QUESTION: Hi there, I currently own 5 rental properties in BC and AB. I've been told that if you own more than 3 your ventures could be considered a business making trips to look at real estate, gifts to realtors, etc. deductible; is this true, and if so what else could be deducted from the business? Thanks

____________________________________________
david ingram replies:

Well if you want to make buying and selling real estate a business you can do so with one property. Of course, you will pay full taxes on any profits which means more than twice as much tax because it also moves you to a higher tax bracket.

At that point you could fill in form T2124 and deduct whatever you find as a deduction on that form. Even then, it is a question as to whether you can dedcut trips to look at real estate. The general consensus us that you can add the cost of the trip to the ACB if you "buy" a unit and lose the deduction if you do not buy. AND trips to Jamaica, Hawaii, Spain, etc are NOT dedcutible even if you already have a property there.