Living in the USA, working in Canada

[SH1983 0]

I am a Canadian citizen. About to marry my boyfriend. Once I get all my papers to become a permanent resident in the United States can I live in the U.S.A and still work for the Canadian government, and commute back and forth?

[alizon 77]

As I asked in the first version of this post, does your job require you to be a Canadian resident since you work for the Canadian government? If not, then you can commute. If yes, then you cannot move to the US and keep your job. You can't be a resident of both countries at once.

[Flames9_RN 358]

Neiks works for the Cdn govt as a Cdn border patrol agent, but resides in the USA

[neiks 19]

Yep, I do it! If you have any questions in regards to it feel free to ask.

[Brother Hesekiel 2,235]

You can work on an interstellar space ship or Russian submarine, but you must reside in the United States.

But Alizon brought up an important issue: you can't be formally a Canadian resident and a US resident at the same time.

Yes, they talk to each other.

[moemac59 192]

Yep, I do it! If you have any questions in regards to it feel free to ask.

Hey Neiks,

Are you covered under the provincial healthcare system seeing that you work in Canada but reside in the US?

Just curious because I posed this in another topic, was looking at working in Canada (once I'm able to come back after AOS is approved) but residing in the US...being told that I cannot use OHIP because I will not be residing in Ontario..but don't your provincial income taxes cover this cost?

Can you please let me know?

Thanks

[neiks 19]

NO, I am not covered under a my provincial health care (Manitoba). The criteria for eligibility is that you have to be physically present in Manitoba for a total of the 183 days. Basically, a day at work in Canada doesn't count as it is roughly defined as "where you hang your hat at night".

It is one of the cons of the whole thing as CRA still defines me as a "factual resident of Canada" for tax purposes and my tax home is Canada. Also you may not be eligible to certain extended benefits that are based on being covered under a provincial health plan, such as I can't utilize the prescription, and extended health benifits (physio, chiro, etc) of the Canada's gov't plan.

You will have to weigh the pros and cons. To me I am still much better off (payscale and benefit wise) to work for the CBSA than to try to find anything similar in the area we live in in the US. Also if you are considering having children you will still be eligible for Canada's materity/paternity benefit and can collect your EI and any top off while you live in the US. THat alone is a huge deal for some considering the US's maternity leaves.

If you are defined by the CRA as a "factual resident of Canada" for tax purposed you will also be eligible to collect the Child tax benefit (if you qualify) as well as the Universal Child Care Payment.

If you have any other questions, please feel free to ask.

Edited April 13, 2012 by neiks

[moemac59 192]

NO, I am not covered under a my provincial health care (Manitoba). The criteria for eligibility is that you have to be physically present in Manitoba for a total of the 183 days. Basically, a day at work in Canada doesn't count as it is roughly defined as "where you hang your hat at night".

It is one of the cons of the whole thing as CRA still defines me as a "factual resident of Canada" for tax purposes and my tax home is Canada. Also you may not be eligible to certain extended benefits that are based on being covered under a provincial health plan, such as I can't utilize the prescription, and extended health benifits (physio, chiro, etc) of the Canada's gov't plan.

You will have to weigh the pros and cons. To me I am still much better off (payscale and benefit wise) to work for the CBSA than to try to find anything similar in the area we live in in the US. Also if you are considering having children you will still be eligible for Canada's materity/paternity benefit and can collect your EI and any top off while you live in the US. THat alone is a huge deal for some considering the US's maternity leaves.

If you are defined by the CRA as a "factual resident of Canada" for tax purposed you will also be eligible to collect the Child tax benefit (if you qualify) as well as the Universal Child Care Payment.

If you have any other questions, please feel free to ask.

Thanks so much for the info Neiks..very much appreciated.

[MVJ 0]

NO, I am not covered under a my provincial health care (Manitoba). The criteria for eligibility is that you have to be physically present in Manitoba for a total of the 183 days. Basically, a day at work in Canada doesn't count as it is roughly defined as "where you hang your hat at night".

It is one of the cons of the whole thing as CRA still defines me as a "factual resident of Canada" for tax purposes and my tax home is Canada. Also you may not be eligible to certain extended benefits that are based on being covered under a provincial health plan, such as I can't utilize the prescription, and extended health benifits (physio, chiro, etc) of the Canada's gov't plan.

You will have to weigh the pros and cons. To me I am still much better off (payscale and benefit wise) to work for the CBSA than to try to find anything similar in the area we live in in the US. Also if you are considering having children you will still be eligible for Canada's materity/paternity benefit and can collect your EI and any top off while you live in the US. THat alone is a huge deal for some considering the US's maternity leaves.

If you are defined by the CRA as a "factual resident of Canada" for tax purposed you will also be eligible to collect the Child tax benefit (if you qualify) as well as the Universal Child Care Payment.

If you have any other questions, please feel free to ask.

This is all very interesting to me, Neiks! Thanks for sharing. I too am thinking of continuing to work for my private sector employer after POE and commute from Niagara Falls, NY to Toronto a couple of times of week.

Your mention of "factual resident of Canada" for tax purposes is something I was not aware of. Does this mean you end up paying more tax than if you were living in Canada ie. do you pay US Federal, State AND Canadian Federal taxes or do you use the Foreign tax credits and end up paying what you would if you lived in Canada?

[aaron2020 11,651]

This is all very interesting to me, Neiks! Thanks for sharing. I too am thinking of continuing to work for my private sector employer after POE and commute from Niagara Falls, NY to Toronto a couple of times of week.

Your mention of "factual resident of Canada" for tax purposes is something I was not aware of. Does this mean you end up paying more tax than if you were living in Canada ie. do you pay US Federal, State AND Canadian Federal taxes or do you use the Foreign tax credits and end up paying what you would if you lived in Canada?

As a US permanent legal resident, you must make the US your legal home (domicile).

As an LPR, you are obligated to report your worldwide income on your US tax return and your state tax return.

Since you earn the money in Canada, Canada will tax you.

You do not qualify to use the Foreign Earned Income Exclusion because it requires you to be residing outside the US or be physically outside the US for 330 days in any 12 months. Meeting either of these requirements would put your LPR status at risk. Declaring that you are residing outside the US without obtaining a re-entry permit to qualify for the FEIE could be evidence that your legal residence is Canada and not the US. Declaring that you were physically outside the US for 330 days put you at risk for losing your LPR status since you are not using it to live in the US.

However, paying Canada taxes does not mean that you will be doubled taxed. You will get a US tax credit for income taxes paid to a foreign country. For example; Canada tax your income at 25%. The US tax your income at 35%. You will not end up pay 60% (25% + 35%)in taxes. The US will give you a foreign tax credit. The US will charge you only 10% (35% - 25% tax credit for taxes paid to Canada).

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http://www.irs.gov/businesses/small/international/article/0,,id=96817,00.html

Foreign Earned Income Exclusion - Requirements

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

• A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
  
• A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
  
• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
  

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Being a bona-fide resident of a foreign country puts your LPR status at risk.

This requirement can be met by an LPR who reside outside the US who has a valid re-entry permit. The permit is a single use. So, it is impractical for you since you will be traveling back and forth between the US frequently.

[neiks 19]

This is all very interesting to me, Neiks! Thanks for sharing. I too am thinking of continuing to work for my private sector employer after POE and commute from Niagara Falls, NY to Toronto a couple of times of week.

Your mention of "factual resident of Canada" for tax purposes is something I was not aware of. Does this mean you end up paying more tax than if you were living in Canada ie. do you pay US Federal, State AND Canadian Federal taxes or do you use the Foreign tax credits and end up paying what you would if you lived in Canada?

Hi MVJ. I'm by no means an expert in tax issues, so really have no reply for what was posted above. I pay a very reputable CA that is experienced and knowledgable in international tax issues to do my taxes. All I can tell you from my experience is that I am taxed in Canada as any other normal Canadian resident. I file US federal tax and claim all my "worldwide income" and do not pay/owe any federal tax to the IRS(due to the tax treaty - an don't know how all that works - that's why I pay a professional to do it) but I do pay state income tax (as I have been told by my CA - state's do not have to follow the tax treaty).

I don't beleive I claim a "Foreign Income Exclusion" on my US return (don't have my tax return in front of me to check) so I don't beleive my US permaent residency is ever in question. My advice is to consult with a experienced and knowledgable tax international tax expert.

[aaron2020 11,651]

Here is a very good article which expands on my post; http://www.americanlaw.com/ustxtmp2.html

Overview of Tax Considerations for Canadians in the United States

Introduction

Due to its proximity to the United States, Canada is the United States' largest trading partner. In addition, Canada is a signatory to the North American Free Trade Agreement ("NAFTA") with the United States and Mexico. As a result of these very close economic and cultural ties between Canada and the United States, many citizens and residents of one country often move to the other country to work, to invest, to conduct business and even to retire.

Canada and the United States each have very unique systems of taxation. However, these two countries have signed a Tax Treaty in order to avoid double taxation and to prevent fiscal evasion with respect to taxes on income and on capital. The Canada-United States Income Tax Treaty ensures that a resident of one country is not taxed by each of the two countries on the same income in the same year. (referred to as "double taxation"). This is particularly important if a person lives in one country and either commutes to work in the other country every day or moves to the other country temporarily to work for a limited period of time.

The discussion below will outline general Canadian and United States principles concerning the taxation of individuals. It is of a summary nature only, and should not be acted upon without professional advice.

Canadian Tax Information

Unlike the United States, (which taxes individuals based on their citizenship) Canada taxes individuals based on their residency. Therefore all residents of Canada are required to pay tax on worldwide income earned in a particular calendar year. For income tax purposes, residents of Canada include individuals who permanently reside in Canada, whether as citizens or landed immigrants of Canada. A Canadian resident who leaves Canada on a temporary basis, with the intention to return to Canada in the near future, continues to be considered a resident of Canada for income tax purposes. As a resident of Canada, he or she is required to file an income tax return in Canada every year and is required to report worldwide income earned and pay Canadian taxes on this worldwide income.

Canada also taxes non-residents on certain Canadian source income under certain circumstances, which may include withholding tax on interest, dividends, royalties, etc. paid to a non-resident. In addition, non-residents who "sojourn" (visit and stay in Canada) for greater than 183 days in a given year are deemed to be Canadian residents for income tax purposes and are subject to Canadian tax on their worldwide income.

As long as the individual remains a resident of Canada for income tax purposes, Canadian taxes are due even though the individual may be working in the United States and already paying tax on United States employment or business income. Under United States tax law, Canadian citizens living in the United States (referred to as non-resident aliens for United States income tax purposes) are required to pay tax on all United States source income (and perhaps on worldwide income), despite the fact that they may be residents of Canada for Canadian income tax purposes and therefore be required to pay Canadian tax as well on the same United States employment or business income. Canadian domestic tax law as well as the Canada-United States Income Tax Treaty would generally allow United States taxes paid on United States employment or business income to be offset against Canadian taxes calculated on the same United States employment or business income, as a "foreign tax credit". Of course, there are certain restrictions regarding the amount of foreign tax credits that may be claimed for Canadian income tax purposes.

Usually the combined United States Federal and State personal income tax rates are lower than the combined Canadian Federal and provincial personal income tax rates. As a result, it is generally desirable to pay income tax only in the United States and not in Canada. By remaining a resident of Canada for income tax purposes all United States source personal income is subject to Canadian tax, which may be partially or wholly offset by foreign tax credits. However, the total tax paid in the United States plus the tax paid in Canada (net of foreign tax credits) usually equals the tax that would be paid in Canada, at least on the United States source income.

The determination of residency is important for Canadian income tax purposes. As discussed above, residents of Canada are subject to Canadian tax on their worldwide income. Certain onerous income tax rules come into play that could result in a large tax liability (generally referred to a "Departure tax") when an individual leaves Canada and moves to the United States permanently.

The term "residency" is not defined in the Income Tax Act (Canada). However the Federal Government's Department of National Revenue, Revenue Canada, in its Interpretation Bulletin IT-221R2 - Determination of an Individual's Residence Status, provides certain guidelines to assist taxpayers in determining residency for income tax purposes. In the Interpretation Bulletin, Revenue Canada states the following:

Where an individual leaves Canada, the following factors will be taken into consideration in determining whether or not the individual will remain a resident of Canada for tax purposes while abroad:

permanence and purpose of stay abroad,

residential ties within Canada,

residential ties elsewhere, and

regularity and length of visits to Canada

Revenue Canada has stated that when an individual leaves Canada for a period of less than 2 years, that person will be presumed to be a continuing resident of Canada for income tax purposes. However, if the individual can establish that he or she has severed all residential ties on leaving Canada, that individual will be considered to have become a non-resident of Canada on departure, even if they do return within 2 years. If there is evidence that his or her return to Canada was foreseen at the time of departure (e.g. a contract for employment upon return to Canada), Revenue Canada will presume that he or she did not sever all residential ties with Canada.

Revenue Canada considers the following factors in determining an individual's residential and other ties with Canada:

dwelling place (or places)

spouse and dependents

personal property

social ties

provincial hospitalization and medical insurance coverage

a seasonal residence in Canada

professional or other memberships in Canada (on a non-resident basis)

family allowance payments

The greater the number of ties an individual has with Canada, the greater the chance that the individual is a resident of Canada.

Canadian courts have held that:

everyone must be resident somewhere, and

it is quite possible for an individual to be resident in more than one place at the same time for tax purposes.

A departing Canadian resident must establish a residence elsewhere, otherwise the presumption is that he or she is a continuing resident of Canada for income tax purposes. Where under the domestic tax laws of Canada and another country (e.g. the United States), an individual is a resident of both countries at the same time, the applicable Income Tax Treaty must be examined to determine how the conflict will be resolved. The Canada-United States Income Tax Treaty contains such "Tie-Breaker" rules.

United States Tax Information

To assist in the understanding of certain United States income tax terminology, consider the following definitions:

Resident aliens - individuals who are not United States citizens who have moved to the United States on a temporary basis to either work or attend school. Resident aliens are taxed in the United States on worldwide income.

Non-resident aliens - individuals who are not United States citizens and who do not reside in the United States. Non-resident aliens are only taxed on United States source income, such as employment income, interest, dividends, royalties and income effectively connected with a United States trade or business.

As indicated above, the United States tax laws require all United States citizens to pay Federal income tax on worldwide income, no matter where they reside in the world. This means that United States citizens have to file annual United States Federal income tax returns even if they are currently residents of other countries and have been for years. The United States does allow its citizens to claim an annual $70,000USD foreign earned income exclusion, where certain criteria are met. In addition, the United States allows foreign tax credits, being income taxes paid to other foreign countries and jurisdictions, to offset Federal income taxes payable.

Canadians, who are not also United States citizens who move to the United States on a temporary basis, may be considered to be resident aliens for income tax purposes. Canadian citizens, either working or conducting a business in the United States, will be required to pay Federal, state (if applicable) and city (if applicable) income taxes.

Generally, a foreign citizen is treated as a non-resident for United States tax purposes, unless he or she meets one of the statutory tests for residency. These tests are: (a) the Lawful Permanent Resident test, and the Substantial Presence Test. The lawful permanent resident test would not apply to Canadians who are in the United States temporarily. However, most Canadians in temporary status would probably meet the Substantial Presence Test, which is based on physical presence in the United States.

A foreign national will meet the Substantial Presence Test if he or she is present in the United States for 31 days in the current year and the sum of the following:

sum of the days present in the United States in the current year,

one-third of the number of days present in the first preceding year,

one sixth of the days present in the second preceding year equals or exceeds 183 days.

There are limited exceptions for foreign government employees and professional athletes. Canadians who regularly visit the United States for business or pleasure and meet the Substantial Presence Test, will be treated as residents for United States tax purposes. However, a "Closer Connection Exception" is available if all of the following apply:

the alien has been present in the United States for less than 183 days in the current year;

the alien has maintained a permanent place of residence in Canada throughout the current year; and

the alien files Form 8840 by the due date, usually June 15th of the following year.

If a Canadian meets the Substantial Presence Test but is ineligible to meet the Closer Connection Exception (i.e. since he or she is present in the United States for more than 183 days in the current year), he or she will be considered to be a resident alien of the United States. Resident aliens are taxed on worldwide income in the same manner as United States citizens.

Unlike Canada, United States tax laws allow a husband and wife to file a joint income tax return, in which worldwide income earned in a current calendar year by both individuals is reported. However, to be eligible to file a joint income tax return, both individuals must be United States residents on the last day of the tax year and they must make a special election.

As noted above, United States taxes paid by a Canadian, who is residing and working in the United States temporarily, can be claimed as foreign tax credits against Canadian taxes payable on the same income which has to be reported in Canada, as the individual is considered to be a resident for Canadian tax purposes as well.

Non-resident aliens are not subject to state or city taxation as they do not reside in the United States. However, resident aliens are subject to state and perhaps city taxation (only certain major cities in the United States assess income tax on their residents) since they actually reside in a particular city and state. State and city income tax is generally calculated as a percentage of Federal Adjusted Gross Income ("AGI"). State and city income tax is generally deductible for Federal income tax purposes.

[neiks 19]

However, paying Canada taxes does not mean that you will be doubled taxed. You will get a US tax credit for income taxes paid to a foreign country. For example; Canada tax your income at 25%. The US tax your income at 35%. You will not end up pay 60% (25% + 35%)in taxes. The US will give you a foreign tax credit. The US will charge you only 10% (35% - 25% tax credit for taxes paid to Canada).

So, please excuse my early morning fog from my last post. I do know that I do not claim the Foreign Income Exclusion and it is the Foreign Tax Credit that I get on my US federal return.

This makes sense to me now as in Canada I am was taxed roughly at 29% and in the US at 28% so hence why I didn't owe to the IRS. Aaron2020's explanation of the Foreign Income Exclustion got me confused at 4am

[aaron2020 11,651]

Sorry about that. I was trying to weave some immigration consequences into filing US/Canadian tax returns when an LPR reside in the US and work in Canada.

The Foreign Earned Income Exclusion is often discussed on site when a US citizen or LPR (temporarily outside the US with a reentry visa) are residing outside the US and earning money outside the US.

An LPR must reside outside the US or be physically outside the US for more than 330 days out of the year to qualify for the FEIE. Claiming it without a reentry visa puts the LPR at risk for losing his LPR status because the LPR does not have USCIS permission to be outside the US for up to 2 years. It's perfectly okay for an LPR with a reentry permit who reside outside the US to claim the FEIE.

Since a reentry permit is good for a single reentry into the US, it will not work for an LPR who commutes to Canada every work day and return to the US at night.

An LPR who reside in the US, commute to Canada to work, and claim the FEIE is claiming on legal documents that he reside outside the US or was physically outside the US for more than 330 days. Not a good immigration result.

The Foreign Earned Incime Exclusion is completely different from the Foreign Tax Credit. The FEIE excludes the foreign income from being taxed. The FTC taxes the foreign income and gives a tax credit based on taxes paid on that income to a foreign tax authority. Please be aware that they are two completely different tax issues.

[Kathryn41 3,205]

This is all very interesting to me, Neiks! Thanks for sharing. I too am thinking of continuing to work for my private sector employer after POE and commute from Niagara Falls, NY to Toronto a couple of times of week.

Your mention of "factual resident of Canada" for tax purposes is something I was not aware of. Does this mean you end up paying more tax than if you were living in Canada ie. do you pay US Federal, State AND Canadian Federal taxes or do you use the Foreign tax credits and end up paying what you would if you lived in Canada?

You would be taxed in Canada due to your employment in Canada ('factual, but not actual, resident of Canada) and need to file returns in both Canada and the US. You would be a US resident, so your US return would declare your 'world income' and then you would claim a foreign tax credit for the amount of tax you paid to Canada through your employment. Basically, the tax treaty between Canada and the US would ensure you would not pay double taxation - except for the circumstances noted by Neiks where the State you reside in does not have to follow the tax treaty. Since you would not be residing in a Province, though, it is my understanding you would not have to file a Provincial return so it should balance itself out. You would file through the International Tax Office but would fill out the return based upon the Province in which you were employed (Ontario).

The easiest way to do it would be Neiks way - pay a qualified cross border tax consultant to prepare your returns..

Edited April 19, 2012 by Kathryn41