I am a US citizen and moved to Canada over a year ago. I am a resident here and own a home that I live in here. All my income is from the US. I work long-distance for a US company located in Virginia. They deposit my salary into a US bank account. They take out income taxes, social security, Virginia state taxes, etc for uncle sam. I have a rental property in the US. I get interest income from a US bank account.
I know that I am not double taxed. So if my tax rate in Canada is higher than the US, and the US has first dibs, then I get a tax credit toward my Canadian taxes of whatever I paid to the US. But I have questions:
Which country gets first dibs, and which one gets the leftovers, for my income taxes? Is this answer the same for all my income sources (salary, interest, rentals)?
Do I pay social security taxes to both countries?
Do I pay income taxes to Virginia or Alberta (the province I live in)?
Here are the general rules, your situation may have specific exceptions.
- The country which has first dibs is the country where the money is earned/received, unless exceptions exist in the treaty.
- Social security taxes fall under the social security treaty, not the tax treaty. The Canadian-US SS Treaty indicates that Social Security is only paid to the country of residence.
- In the Virginia vs. Alberta conflict, Virginia may not recognize the tax treaties. The province of Alberta's taxes are subsumed within the Canadian Federal tax return.
Another generality is that each non-resident/dual-resident situation is unique and a specialist will take some time to determine the correct filing position for the return. As mentioned during an IRS conference by a foreign tax credit specialist at the IRS, it is not how much that is owed that is in question, it is to whom that is the problem.
The previous poster gave a good starting point. The key is to get copies of the US-Canada income tax treaty and the Totalization Agreement (social security).
Where funds are deposited is not relevant to where income is taxed. It appears that you have become a permanent resident in Canada, so it's likely that your income will first be taxed by Canada on their T-1 form. But as a US citizen, you have to report your worldwide income on your Form 1040. The Virginia company is probably wrong in withholding social security and Medicare taxes, as you should be under the Canadian system; withholding for federal and Virginia income tax is based on the W-4 you file with them. Normally, you owe state income tax to the state you last resided in before moving to Canada.
But here's the good news: if you can show that (a) you resided in Canada for 330 days out of the first 365 days after moving there or (b) you are a bona fide resident of Canada, you can exclude from US and Virginia tax up to $91,400 (2009) of your earnings while in Canada (figured on a daily basis). Form 2555 has the details. Any income exceeding that that Canada taxes generates a Foreign Tax Credit (Form
1116) that probably means you will owe little if any US tax, though that credit isn't available to Virginia.
(I've had the occasion a couple of years ago to prepare a T-1 for one of my expatriate clients who resided in Argentina but had Canadian- taxable income.)
What I don't understand is why do you have Virginia tax withheld. If you are a Virginia resident, meaning that you plan to return there or have roots there, then yes. But if you are no longer a Virginia resident, Virginia tax ought not to be withheld. As far as I know, if a CA corporation has an employee in TX, they only have to withhold TX tax for that employee. However, rental income for a property based in Virginia is probably considered Virginia source income (at least it is for California) regardless of where in the world the landlord lives, so that's the only thing you should be paying tax on in your Virginia non-resident tax return, although it may be taxed at a higher rate because your federal AGI includes your net worldwide income. Maybe I'm missing something though.
I'm not aware of a treaty between Virginia and Alberta, ie. the credit for taxes paid to another state/province. So you may very well be double taxed. However, Virginia does not tax social security. Alberta might, but I don't know.
It's not clear to me from your post exactly what your status is in Canada. E.g., you say you moved to Canada and are working long distance for a US company. I don't know what that means. Did the company relocate you to Canada? At the time of the relocation was it intended that you work In Canada for five years or less? Did you move to Canada on your own? Have you formally applied for a Canada Immigration Visa (permanent residency) and been accepted? Are you there on a Canada Work Permit?
Your answers to these questions would help us to provide a more accurate answer to your questions.
Having just completed several of my Canucks returns and Yanks that work in Canuckdom returns .........
Residency decides things. As a US citizen you will be taxed on you total income everywhere (worldwide) including interest, dividends earned in canada (remember to convert everything outside of the US into US currency, You will pay self employment taxes here in the US, etc. In Canada (residency) you will follow there laws and claim a Foreign Tax Credit on your T1 for taxes paid in the US (including the SE tax) thus reducing you Canadian liability by the amount of US taxes paid. (Note probably not $ for $ as there are income sourcing ratios involved)
Suggestion - Retain a US CPA (or other competent professional NOT located in a franchise store outlet type) to prepare your US 1040 and seek a CA (Chartered Accountant) in Canada EXPERIENCED with the foreign tax credit and US taxation. Remember the T1 is due 4/30 and Canada DOES NOT allow extensions but they DO allow amendments. At this late time expect your return to be amended.
I am a CPA located in the Detroit area and work with a couple of CAs in Windsor, ON and know from experience that most CAs are NOT experienced enough to do the work PROPERLY.
Mark Rigotti CPA NOT seeking additional cross border work at this time I already have enough to do by our own 4/15 deadline.
You have now noticed that you have received a number of answers, some of which conflict with each other.
I would suggest that you seek professional assistance with your returns. One poster indicated that you should been seeking two professionals (a CPA in the states and a CA in Canada) but I would suggest that (1) you can find a single individual who can prepare returns for both sides of the border and (2) as you are in Alberta, the CA "myth" that only a CA is good does not apply. There are also CGA and CMA who are competent and Alberta allows them to practice. It is only Ontario who does not. (That poster lives in the Windsor- Detroit border area so I do understand his confusion on that point.)
But I will agree that an income tax retail storefront would not have the experience or knowledge needed for your situation. As you have delayed until this point, it is unlikely you will find someone able to handle your request before the filing deadline.
(I also handle returns for both jurisdictions but am certainly not in a position to add additional work and meet the April 15 deadline.)
So if I am residing in Canada, then it seems that I should be paying my FICA taxes (in Canada it?s called CPP and EI taxes) to Canada, but I have been paying them to the US. So is there a way to get a refund for these when I do my US taxes? I suppose that my company also doesn?t need to pay their portion of the FICA taxes to the US, right?
The company didn?t move me here. I moved by my own choice because my wife?s from here. We are planning on staying indefinitely. I have a permanent residence visa that I just got in January 2010. In 2009 I was here on a visitor visa, but lived here the entire year, so would be a bona fide resident of Canada.
You are right that some answers are contradictory. And the answers are from experts. It doesn?t give me much confidence that if I hire an accountant, he will necessarily get it right.
The treaty says you are covered by Canada's social security system. However, your employer will continue to withhold employment taxes until such time that he receives formal notification. See this link that discusses certificates of coverage:
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You were domiciled in VA and as such are a VA resident. Until such time that you show that you are no longer domiciled in VA, VA will want it's share of your income. You must formally notify your employer that you are no longer a resident of VA; you are a resident of Canada, and instruct him to cease withholding VA taxes. Then you should file a VA nonresident tax return to obtain a refund.
As a permanent resident of Canada, they have first dibs. You file and pay taxes to Canada. You must file A US return. Here you have the option of excluding foreign earned income as a bona fide resident of Canada and/or taking the foreign tax credit. Note, that as a US citizen, you are subject to the savings clause in the treaty. Tis is the clause that allows a country to tax its citizens regardless of treay benefits. However, there are exceptions to the savings clause in many treaties, including Canada. See Article 29 of the treaty.
My best advice is to have a tax professional familiar with cross border issues prepare your first tax return. After that, you may be able to do it yourself.
The earned income exclusion only applies to salary and self-employment income. Anyway, if your CAD tax is more than your US tax on the same amount of income, the foreign earned income might be useless as you can take the foreign tax credit.
However, I believe that for rental income, Virginia gets first dibs on the income because it is considered Virginia source income. Even if you made yourself a non-resident this would be the case.
Hit a large banks website and get the monthly averages from them. Keep a copy for documentation purposes. I believe that you have to do things on a monthly basis and not an annual basis.Hit a large banks website and get the monthly averages from them. Keep a copy for documentation purposes. I believe that you have to do things on a monthly basis and not an annual basis. Do not mix and match from different banks each month.
One question that has arisen in this discussion is your status for Virginia personal income tax purposes. Virginia law defines a resident to include all persons who are domiciled in the state. Va. Code Ann. §58.1-302; Va. Admin. Code 23 §10-110-30(B). Your domicile is your true, fixed home and permanent establishment; the place to which, whenever absent, you intend to return, even if your absence is for an extended period of time. The Virginia regulations provide a list of factors that are taken into account in determining an individual's domicile, and emphasize that the burden of proof rests on the party that wishes to show that a change of domicile has occurred. You can access the regulation here:
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A change of domicile requires all of three elements: Moving away from the old domicile and severing your ties to it; moving to and residing in a new location; and intending to reside in the new location permanently or indefinitely. An intention to return to the previous home, even after an extended period of time, would usually not result in a change of domicile.
You can compare your situation to the factors listed in the Virginia regulation and make your own decision whether your domicile has actually changed to Canada. From what you have stated, I would guess that you are no longer domiciled in Virginia; but only you have access to all of the facts and circumstances.
If you are not domiciled in Virginia, you are still subject to Virginia tax on income from Virginia sources, which would include the net income or loss from rental property located there. It does not include income from intangible assets such as interest, dividends, or gain/loss on sale of intangibles such as stocks and bonds. This is true even if the payer of the income or the issuer of the security is located in Virginia. So you will still be required to file a VA tax return, but as a nonresident, reporting only VA source income. Because Virginia has graduated income tax rates, the nonresident return form requires you to report all of your income, from all sources, and calculate your taxable income as if you had been a resident for the entire year. Your total taxable income for state purposes is then prorated by the ratio of your VA source AGI to total AGI from all sources. This is a common methodology for calculating tax liabilities of nonresidents in states with graduated income tax rates, so that a nonresident pays tax on source income at the same average rate that apply to a resident with his or her income level, filing status, number of dependents, etc.
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