Frequently Asked Questions about International Taxes

FAQ

Does Visa status determine tax status?

No, You can be a tax resident of the US with a TN Visa by satisfying the physical presence test. A TN Visa is only temporary to the point you choose not to renew it.

Can I take my US return to a tax advisor in the US and my other nation return to a tax advisor there?

Yes, but only if they consider the income in both countries. You cannot file returns in a vacuum reporting US income to the US and so on.

But that's what all my friends do

Its still wrong and they are getting poor advice. The scariest thing that could happen lies in the future. The IRS and CRA have three years to reassess a return. After that, it is closed and no changes can be made (Statute of Limitations). An unfiled return has no closing date. If the country where you did not file or filed incorrectly assessed tax on one of those years, you will not be able to amend the return you filed with the other country. This could lead to double taxation.

Are Canadian RRSP's, RESP's and US IRA's treated the same

No, neither is recognized in the same way by Canada or the US. Be careful about when you make any withdraws. Additionally, all contributions to IRA's in the US must be added back as income to the Canadian side. As a Canadian resident, it is better to contribute to your RRSP unless you have a matching program with your IRA. Earnings in RRSP accounts are taxable in the US unless you make an election to defer taxation on these accounts.

I am claiming a tax home in Canada (or another country). Do I have to file a tax return there?

Yes, if you are claiming a tax home in another country, that country has the right to tax worldwide income. You may be entitled to tax credits and exclusions based on your situation

Will I get audited by either nation

The CRA (Canadian Revenue Agency) is very diligent in confirming taxes paid to another country. You may receive letters asking for clarification. Anytime there is a complex return, there is a greater chance for review and clarification measures.

I am working in one area more than 12 months in the US, can I still receive tax free housing?

IRS rules limit temporary assignments to less than 12 months in a given area, consecutively or non-consecutively. Though you may have treaty protection, your temporary status for deductible living expenses will cease. You may go to another part of the country, but you cannot remain in the same area. The only exception to this rule is a situation where the hospital itself provides housing on their campus - not an offsite apartment..

Can I claim my dependents residing in my home country

Children on Mexican and Canadian taxpayers can be claimed. They will require a ITIN. We are Certifying Acceptance Agents and can help you obtain an ITIN for your dependents

How do I get an ITIN for my child or spouse

An ITIN is not a Social Security Number, it is a tax ID and it is only issued when a tax return requires an ID. ITIN's can only be obtained by filing a W7 (Application for taxpayer identification number) with a tax return. The return and ITIN application must be mailed to the Philadelphia office of the IRS.

I am Canadian. Will keeping a bank account in Canada make me a resident of Canada?

Not necessarily. If the bank account is your only tie to Canada, it is not sufficient. Additionally, if you are deemed a resident of the US by treaty, the bank account is irrelevant.

Can I be considered a tax resident of two nations

Yes, though the determination of the tax home by tax treaty may provide benefits

Common Pitfalls of International Taxation

Getting a big refund in the US is not important

This may sound odd, but the greater the refund, the less tax liability. When filing in your home country, your foreign tax credits are based on your tax liability, not your withholding. It is like a see-saw. Pay less here, pay more there, the totals are the same - you will always pay the higher tax of the two nations. Good international tax planning focuses on minimizing your total tax liability, not just the liability in one nation.

Major currency fluctuations can impact the way you approach a return

In 2004, the US Dollar fell against most currencies and then rose the last part of the year into the spring of 2005. The presented a opportunity. Since tax returns are based on events of the past, The annualized exchange rate was used to compile the return. Since the US Dollar was less valuable in the spring, getting a smaller refund was beneficial since the value of the transferred tax credits was more than the refund in cash would have been in the Spring. By benefiting from the currency swings, the actual tax liability was lower.

Staying in the US less than 183 days each year is not so important..

Days spent in the US is not important so long as the ties to the other country are sufficient to remain a resident of that nation. Tax treaties trump domestic law so the rules governing tax residence may be based on your treaty claim.

Common Mistakes of Canadian - US Cross Border Tax Planning and reporting

1) Incorrect withholding on passive income. The tax treaty specifies the withholding rate of any income originating from a non resident country.

2) Non Resident Canadian rental property requires a reporting agent and withholding. Make sure that the withholding is based on net profit and not gross receipts

3) One or both countries will need information about worldwide income

4) Foreign bank accounts and any combination of accounts totaling > 10K need to be reported to the US treasury

5) Earnings within RRSP's and RRIF's must be reported. The are taxable at the federal level unless a deferral election is made. Some states tax earnings in these plans regardless of any treaty protection or deferral

6) Foreign tax credits can be an itemized deduction vs an actual credit. A good cross border preparer can find the most advantageous method

7) Social Security, OAS and CPP payments are still taxed by the resident country

8) Any Canadian departing Canada MUST report the value of all fixed assests

9) When leaving Canada, the departure year Canadian return must include a declaration of non residency and prorated tax credits

Common Mistakes of Puerto Rico - US Tax Planning and Reporting

1) Puerto Rico is considered a foreign country for tax purposes and vice versa. Residency is important

2) Puerto Rico has its own tax system. Merely filing in the US is not sufficient.

3) A Puerto Rican resident with US income will prorate their standard deduction based on total income in booth "countries"

Common Mistakes of UL, Australian and NZ - US Tax Planning and Reporting

1) These countries do not follow a calendar year tax regime. The income and taxes must be prorated based on when earned

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