I am trying to figure out how to go about filing the first year tax return as a Canadian PR. For 2019 I lived for a few months in the US and was employed there, the rest of the year in Canada on PR and employed here. I would appreciate anyone who can share their first year tax filing experience. Thanks!
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My company has hired Deloitte for providing consultation regarding the US/Canada move, but I will still want to get it reviewed by my old US based financial tax advisor and a local advisor in Canada. Looking for recommendations for a good tax advisor in GTA.
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As far as I know US and Canada have tax treaty to avoid double taxation. Since there was no overlap between your US and Canada incomes, you can probably file two separate tax returns, mentioning your US salary period in Canada tax returns, and Canada salary returns in US tax returns. The tax treaties if any, can probably be mentioned in the the relevant NR forms (for IRS). However, I highly recommend going to a tax consultant than taking advice from me (I’m in the same boat as you and going to do the same).
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one thing that I need to be mindful of (and probably some more folks here), is that Canada taxes on global income after you become resident of Canada. So if you received a final settlement or some paycheck from your US employer after your final move to Canada, then you need to let your step-Uncle “Charles” (aka CRA) and pay tax on it in Canada, so your real Uncle Sam will not double tax you on that amount.
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Whats did u guys end up doing for tax returns?
Any pointers or cpa recommendations please?
Yeah same question… How did anyone file USA taxes and Canadian Taxes when someone worked remotely from Canada but was getting salary in USA in same year…
You need to file US taxes using your w2 and then file Canadian taxes and report your US w2 income and use treaty to claim credit to avoid double taxation on the overlapping percentage and then pay the difference to CRA (if you are in a higher tax bracket in Canada). Its a bit involved, so hire a CPA or turbo tax or some service.
Thanks for reply…
- Is this when you are physically present in US for more than 6 months?
- What if someone was present in Canada for more than 6months physically and still was working on US W2 to get salary in USD and nothing was earned in Canada?
In 1st point, it is clear that you are US resident and non-resident in Canada for tax purposes.
But,
In 2nd point, It is not clear as you are US resident as per Substantial presence test… and also you are Canadina resident as per tax purposes as you have spent more than 183 days… But one CPA my friend talked to, said you cannot be tax resident in two countries for same year. is it correct or need to ask other CPA?
I really don’t know about 1.
I was clearly resident of both countries for tax purposes for the first year. US due to presence test and Canada, I was here majority of the year.
great then thats what is matching with my friend’s case who is looking for help…
In that case if you were resident for both, then how did you file at both places?
Did you use a common CPA handling both countries taxes?
or
Did you file US tax first yourselves and then you filed CA tax yourself online?
or
You took help of any CPA in either country and did the other country yourself?
Thanks again.
I used TurboTax in both places- took their most premium service. For US TurboTax i had to do a lot of research myself, it took a while. The Canadian part was pretty hands off, it was a different sort of service. Let me emphasize that this requires a lot of reading and research about taxation.
@am1
Great… I totally understand as we like to do lot of research too and will do that.
But following questions for now:
- Did you do this for 2019 year or 2020 year?
- Did you file as resident of US for that year and filed the US taxes first?
- Then did you claim all the taxes you had paid in US tax return, as foreign tax credit in CA tax return?
- Did you file a 1040 or it was 1040NR for US when filed using turbotax?
- Did you have any investment account like brokerage etc. in that year when you did this?
Thanks again.
- 2019
- US 1040 first then Canadian
- basically yes
- 1040
- yes there were investment accounts
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Thanks for the reply…
So in this case it was 1040, then it means you filed US Tax as a resident and then even CA tax as a resident…
Please confirm, this finally clears my doubt that we can file two countries as Resident in same year… because somebody told we cannot do it… But if you did it then i will also do it and will ask my friend also to go ahead…
thanks again.
Thats good to know… Thanks it really helps as i am planning to file US tax as resident first myself using turbotax etc. and then will be filing CA tax as resident again myself using turbotax etc. or may be CA tax using a CPA as need to get credit of taxes paid in US as foreign tax credit to avoid double taxation…
My $0.02 of advice would be to talk to a tax professional, personally I don’t think it’s a good idea to file taxes as a resident of both the US and Canada.
Per the tax treaty between the US and Canada you can be a resident of one of these countries, not both concurrently. The main problem is that you’ll end up underpaying taxes in both places if you elect to be chosen as a resident. Let me give you an example -
You lived in the US for lets say 5 months and made income there, lets say you made 50,000 USD during this time. You moved to Canada for the remainder of the year (7 months) and lets say that you made 70,000 CAD for this period of the year. This is just assuming income, no capital gains or rental property income or anything else that would complicate the situation.
Now let me guess your plans of filing taxes (this is a guess so it may very well be wrong but lets go with the flow for illustration purposes).
Plan 1.
You plan to file as a resident in the US and declare your US income only.
You plan to file as a resident in Canada and declare only your Canadian income.
The biggest pro of this approach is that your tax burden will be minimized, the biggest con is that this is illegal, both Canada and the US tax their residents on their worldwide income and you therefore you’ve misrepresented your taxes in both countries.
Plan 2.
You plan to file as resident in the US and declare your worldwide income.
You plan to file as a resident in Canada and also declare your worldwide income.
This is the classic chicken and egg problem, you need to file taxes in one country first so that you can claim a deduction in the other country.
The other problem, if you find a solution to the first one is that you will again have misrepresented your tax situation. The US and Canadian tax codes are different in how they treat families, now if you file as Married Filing Jointly with your spouse and dependent children. Then your tax liability in the US would be reduced significantly (US doesn’t let non residents file jointly or to claim dependents), whereas your tax liability in Canada will be inflated because they don’t have this concept of filing taxes jointly and you’d only get credit for taxes that you paid in the US.
Plan 3.
You plan to file as non resident in the US and declare only your US income.
You file as a Canadian resident in Canada and declare your worldwide income and get a tax credit for taxes paid in America.
This is the right solution for the hypothetical scenario that I described. You first file 1040-NR in USA and then your taxes in Canada. Use the income and taxes paid reported in that to claim a credit in Canada. The downside is that you will have a higher overall tax burden than in Plan 1 and may have to pay back certain benefits in part or full like the Canada Child Benefit if you did receive that at all.
Now I will grant you that the chances of an audit are very slim statistically speaking, so you may be able to get away with it but if by any chance you did get audited, then you would be in a bit of a pickle for sure. Take the advice for what it’s worth, free advice from a random stranger on the internet and do as you please.
I’m a huge fan of doing my taxes myself (with software not with pen and paper) and in general don’t believe in dealing with either Accountants or financial planners. In my book, understanding how and why you get taxed the way you do is a fundamental step in financial literacy and most people should really be able to do this themselves. Most accountants will collect information from you, put this through a software program and bam your return is done, so it’s always a good idea for me personally to cut out the middle man. But when it comes to dealing with taxation in multiple countries, it’s not a bad idea to talk to a professional. At the very least if they screw something up, they’re going to be responsible for fixing the problem as well.
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@panditji US citizens for example always file 1040 (resident) regardless of where they are, even if they are PR in Canada. If you live permanently in Canada you are resident here for tax purposes. So depending on personal circumstances its not a choice, you are legally obligated to file under the right criteria.
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That’s my understanding too. I was told by a tax professional that in our scenario (Moved Aug 2020 from California to GTA) we should file as tax resident in both countries. (US tax resident due to Substantial presence test and Canadian tax resident due to residency and ties)
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What if I am filing tax as “Single” in US with only standard deduction with “Single” or lets say “Married filing Separately”, and then filing Single or Separately (which is requirement in CA) in Canada?
There is no more problem of misrepresenting taxes in your plan 2 this way…
and Lets say in your example, If you are making all the income 50000USD+52000USD (converted from 70000CAD) only from US and no income is there in Canada (considering you worked first 5 months in US and then 7months remotely from Canada but same employer paying salary in USD for all 12months)…
So, Now, If you file resident of US and resident of Canada, you will pay lets says $20000 in US with standard deduction for taxes, and then you will pay $35000 - $20000 = $15000 taxes in Canada with foreign tax credit of $20000 for taxes paid in US…
Otherwise, If you file non-resident of US and resident of Canada, then you will not get standard deduction in US, and you will pay more taxes lets say $25000 in US, and then you will pay $35000-25000 = $10000 taxes in US with foreign tax credit of $25000 for taxes paid in US.
So, Either way you have to file US taxes first only and then file Canadian taxes.
Let me know if you find any problems in all the above mentioned.
Also, If I remember correctly then the tax treaty between US and Canada, says you don’t need to pay taxes twice and you avoid double taxation, It DOES NOT say that “you cannot be tax resident of both countries in same year”… The treaty does not give relief if there are some kind of capital gains… You have to pay double tax if you have capital gains (if you are on visa or on green card (unless you are a US resident)