Essentially the IRS is allowing non-resident US tax payers to catch up the last 3 years of US tax returns (1040) and 6 years of late FBARs.

The IRS is however assessing each tax filing with respect to compliance risk and those taxpayers who are deemed to be high risk will face potential additional filing requirement and/or questions from the IRS.

A more detailed discussion of the new streamlined procedures for catching up on your US returns can be found at our firm’s site.

Cheers
Phil Hogan
250-381-2400

I am a self employed Canadian and US citizen residing in Canada.
I file Canadian and US income taxes each year on worldwide income with
foreigh tax credits/exclusions.  I am going to marry a US citizen who
resides in Massachusetts (he is not a Canadian citizen).

We plan to continue to “visit” each other after we get married for a few years and
retain our respective residency status (me in Canada; he in the US).  So
each of us would be at least 6 months in our respective countries.   My
question is: Will this marital arrangement cause us tax issues in either
country?  Do we each continue to file separately as we have been in the
past, but now state that we are married on the returns? Would “married
filing jointly” in the states have any tax benefits under our arrangement?

Answer

Hi XXXX

Hi Deb

You definitely have to disclose that you’re married on both your Canadian and US tax return, however you can decide whether to file separate or jointly in the US.

The biggest concern would be your new husband’s Canadian tax residency status. If he stays in Canada for more than 183 days in any particular year he’ll be a deemed a Canadian tax resident and have to pay tax on his worldwide income in Canada. From a tax minimization strategy it would be best if he ensured he wasn’t in Canada for more than 183 days in each respective year.

Hope that helps.

Phil

Phil Hogan, CA
250-661-9417

I have a question…I’m planning on moving to Canada (I’m a US citizen) in the next few months and I’m wondering whether I should convert my existing IRA ($200,000) to a ROTH IRA or enter Canada and roll it into an RRSP.

What are your thoughts? What are the tax implications?

Thanks

Answer

Hi XXXX

I can probably give you some tax guidance with respect to you IRAs without the exact figures.

You have a few options with relation to the IRAs:

1. Keep them intact when you enter Canada and possibly roll them into an RRSP.
2. Keep them intact when you enter Canada and do nothing.
3. Convert them to a Roth before entering Canada.

Here’s a breakdown of all three options. Consider however that there is no “right answer” as the tax consequences of either option will change depending on your specific set of financial goals and estimates.

Option #1:

If you choose to keep the IRA when you enter Canada you’ll have the ability to cash out the IRA and roll it into an RRSP within 60 days. This will result in a 10% penalty to the US and taxes payable on the distribution to the US and Canada. You will get an offsetting deduction in Canada for the RRSP contribution.

Essentially you will be paying US tax + 10% penalty on the distribution from the IRA. If you have other foreign income you may have the ability of claiming the US taxes against your Canadian taxes as a foreign tax credit (a bonus if you have other foreign income).

The funds inside the RRSP will be sheltered from tax in the US and Canada until they are distributed from the plan, at which time they will be taxable in both the US and Canada.

Option #2:

If you leave the IRAs intact when you enter Canada you’ll be able to defer Canadian and US tax until funds are distributed from the plans. This can be a great growth strategy if you plan on withdrawing the funds in later years when you income is lower. However, the distribution will attract Canadian and US tax when they are eventually distributed from the plan.

Option #3:

You can convert the IRA to a ROTH IRA before entering Canada. By converting the account to a ROTH you’ll pay US tax on the distribution. Once the funds are in the ROTH they will remain non-taxable if they remain in the ROTH and the distributions will also be non-taxable.

Hope that helps. Give me a call if you want to discuss further or if you need help completing your dual status tax returns.

Regards

Phil

Phil Hogan, CA
250-661-9417

Hello Phil,

I have what I hope is a simple question. If a Canadian resident earns
interest income on money invested in the US, does the Canadian
resident then have to file US income tax? If so, is an ITIN number
needed by the Canadian resident?

Thanks

XXXXXX

Answer

Hi XXXX
Under the US-Canada tax treaty you are not required to pay US tax on interest earned from the US. No ITIN (Individual Taxpayer Identification Number) is required.

Hope that helps.

Regards

Phil

Phil Hogan, CA
250-661-9417

Answer

Dear XXXXXX

Under the US – Canada tax treaty you will not be required to pay tax in the US on your US source income as long as you do not have a “permanent establishment” in the US. A permanent establishment is defined in Article V of the treaty as:

2.  The term “permanent establishment” shall include especially:

Regards

Phil

Phil Hogan, CA
250-661-9417

Answer

Dear XXXX

I get this question all the time and in each case it will depend on a specific set of facts. However let me do my best to give you a quick answer and if you have any other questions please give me a ring at 250-661-9417.

From a tax perspective it appears as though you may benefit from incorporating your business if you feel as though you can keep some earnings in the corporation year over year to help the business grow.

If you don’t need the full $130,000 per year for living expenses there can be a significant deferral of tax by leaving accumulated earnings in the corporation to grow at lower tax rates. Also consider that by incorporating you’ll have the ability to split some income with your wife if you planned on issuing her shares of the newly incorporated company.

If you ever decided to sell the shares of the corporation you would be able to shelter a significant portion ($750,000) of the capital gain providing that you met a specific set of prerequisite criteria.

Note however that if were to incorporate you would incur additional annual legal, accounting and tax preparation costs.

Those are some of the more significant considerations.

Give me a call at 250-661-9417 and we can discuss your situation in more detail.

Regards

Phil

Phil Hogan, CA
250-661-9417

I’ve lived in Canada for over 22 years and I haven’t filed a US tax return since I moved here (Ontario). Is the IRS going to want 22 years of tax returns filed? I don’t think I could even find any information more than 10 years back.

I’ll take any help you can offer, thanks.

Answer

Hi XXXX

No, you won’t have to file 22 years of tax returns with the IRS. You should however catch up on your returns by filing the last 6 years of US tax returns under the IRS’s amnesty provisions.

In most cases (as long as all your income is Canadian source) you won’t pay any additional US tax. You will simply have to file the last 6 years of tax returns.

Also note that if you had signing authority on any accounts in aggregate $10,000 for any of the last 6 years you’ll have to file forms TDF 90-22.1.

Also, if you held any RRSPs or RRIFs during these years you’ll also have to file forms 8891 and form 3520 for any TSFA accounts.

Hope that helps and give me a call if you need me to prepare the late US tax returns and all related schedules.

Regards

Phil

Phil Hogan, CA
250-661-9417

Answer

Hi XXX

Canada will withhold 25% of the RRSP payment at source. Unfortunately the withholding rate is not reduced by the Canada-UK tax treaty. Only when the payment is a “periodic pension payment” (RRIF or annuity) will the withholding rate be reduced to 0%.

If the $10,000 is more than 90% of your total worldwide income you could file a s.217 Canadian tax return to try and recover some of the 25% withholdings.

Hope that helps

Regards

Phil

Phil Hogan, CA
250-661-9417

Answer

Hi XXX

Canada will withhold 25% of your withdrawal from the RRSP. If your current tax rate in the US is less than 25% you’ll only pay a total of 25% tax on the withdrawal. If you US rate is more than 25% you may want to calculate your non-taxable earnings in your RRSP to reduce the taxable amount.

If you income is low it’s also possible to prepare a special Canadian tax return (section 217 tax return) to try and reduce the 25% tax, however your RRSP income would have to be at least 90% of your worldwide income for that particular year.

You’ll also have to consider state tax issues if you live in a State with income tax.

Hope that helps. If you need to work out the specifics I can be reached at 250-661-9417.

Regards

Phil

Phil Hogan, CA
250-661-9417

Answer

XX

You should be ok as long as you filed a final return with CRA when you left and included a “departure date” on your final return.

Has the Ontario property been earning any rental income since you left? If so I hope you’ve been filing s.216 returns.

Give me a call and we can chat for a few minutes about your tax situation.

Regards

Phil

Phil Hogan, CA
250-661-9417