My family of 4 (wife and 25 year old son and daughter) are U.S. citizens. We became canadian landed immigrants on 5th august 2010. I am living in Toronto (Preparing for licensure exam) ,but have no job till now. My wife and son work in Bufalo NY and commute every week between Buffalo and Toronto from friday night till monday morning they stay in canada. My daughter is in Med school in usa.
Will somebody help me in outlining my tax liabilities in both countries in usa and canada , for the year 2010 and in the correct order. Where should we file our taxes first . In the country where we live or the country of which we are citizens. In case the answer is different for all four of us please let me know.
I am bit confused as this is the first time. Any help will be appreciated. Thanks in advance.
Location: Western Hemisphere
Posted on: 05-04-11 16:39:33
As US citizens, even if you have no ties to the US for tax purposes, you will have to file US taxes on worldwide income. In this regard, US is only one of 2 or 3 countries in the world that follows this rule.
As Cdn PR, due to you living in Canada, you have established ties to Canada, hence have to file taxes in Canada on worldwide income. Your family has ties to Canada because either because they live in Canada or because you live in Canada.
With that said, you will have to file taxes in both countries. Filing does not necessarily mean paying taxes. How much you pay or not pay depends on how your tax structure and deductions are.
Typically, you start with the country where you have had earnings in the tax year. So, if you have earnings in the US, file that tax first, determine the tax payable, etc.
Then you file taxes in Canada, calculate how much you would owe based on your US earnings. Then you take foreign credit for the amount of tax payable or paid to the US and thereby prevent double taxation. If after taking the credit, you end up owing little more to Canada, then you pay Canada the difference.
The above is a simplistic version. I do my US and Cdn taxes myself and I have setup a nifty excel spreadsheet to do the game playing and iterations to get the best possible out of both country's filing. My point is, it is a complicated thing and you might want to use a good tax professional to deal with your situation.
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Dimple2001
Many thanks to dimple for your time and effort to answer my queries.
Since u do the cross border taxes on ur own, i always had this question.
1> Do u end up paying any taxes on ur Canada return.
2> Does putting money in RRSP end up wiping out any tax owing on ur Canadian return
Quote:
Originally posted by dimple2001
As US citizens, even if you have no ties to the US for tax purposes, you will have to file US taxes on worldwide income. In this regard, US is only one of 2 or 3 countries in the world that follows this rule.
As Cdn PR, due to you living in Canada, you have established ties to Canada, hence have to file taxes in Canada on worldwide income. Your family has ties to Canada because either because they live in Canada or because you live in Canada.
With that said, you will have to file taxes in both countries. Filing does not necessarily mean paying taxes. How much you pay or not pay depends on how your tax structure and deductions are.
Typically, you start with the country where you have had earnings in the tax year. So, if you have earnings in the US, file that tax first, determine the tax payable, etc.
Then you file taxes in Canada, calculate how much you would owe based on your US earnings. Then you take foreign credit for the amount of tax payable or paid to the US and thereby prevent double taxation. If after taking the credit, you end up owing little more to Canada, then you pay Canada the difference.
The above is a simplistic version. I do my US and Cdn taxes myself and I have setup a nifty excel spreadsheet to do the game playing and iterations to get the best possible out of both country's filing. My point is, it is a complicated thing and you might want to use a good tax professional to deal with your situation.
Location: Western Hemisphere
Posted on: 06-04-11 13:09:32
Quote:
Originally posted by dudewheresmycar
Since u do the cross border taxes on ur own, i always had this question.
1> Do u end up paying any taxes on ur Canada return.
2> Does putting money in RRSP end up wiping out any tax owing on ur Canadian return
I will give you a quick answer:
1. No except the OHIP premium.
2. Yes, it is possible depending on how much you owe and how much you have available to deduct.
However, it's more complex than that. If you are claiming, say, foreign credit on US taxes paid, normally, the non-resident US return payable is higher than the resident US return just beacuse the kind of deductions available for a resident is not available for a non-resident. This higher amount helps you to get higher foreign credit which in turn almost equates the Cdn tax bracket and hence you owe nothing. Also, you cannot create a refund in this scenario. You can only bring your owed amount to zero.
Having RSP amount for you to use a deduction further helps play the iterative game to reduce the tax burden. Especially, if you contribute to US 401k, your US wages that need to be declared would be lower; however for Cdn taxes, you will have to declare the entire wage amount. Therefore, there is a possibility of you ending up owing something to Canada which then can be offset using the RSp deduction. With the xchange rate the way it is recently, I haven't used any deductions for almost 4 or more years.
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Dimple2001
Are u telecommuting?
If u are not telecommuting do u still have to pay the ohip premium.
Quote:
Originally posted by dimple2001
Quote:
Originally posted by dudewheresmycar
Since u do the cross border taxes on ur own, i always had this question.
1> Do u end up paying any taxes on ur Canada return.
2> Does putting money in RRSP end up wiping out any tax owing on ur Canadian return
I will give you a quick answer:
1. No except the OHIP premium.
2. Yes, it is possible depending on how much you owe and how much you have available to deduct.
However, it's more complex than that. If you are claiming, say, foreign credit on US taxes paid, normally, the non-resident US return payable is higher than the resident US return just beacuse the kind of deductions available for a resident is not available for a non-resident. This higher amount helps you to get higher foreign credit which in turn almost equates the Cdn tax bracket and hence you owe nothing. Also, you cannot create a refund in this scenario. You can only bring your owed amount to zero.
Having RSP amount for you to use a deduction further helps play the iterative game to reduce the tax burden. Especially, if you contribute to US 401k, your US wages that need to be declared would be lower; however for Cdn taxes, you will have to declare the entire wage amount. Therefore, there is a possibility of you ending up owing something to Canada which then can be offset using the RSp deduction. With the xchange rate the way it is recently, I haven't used any deductions for almost 4 or more years.
