Canadian Moving to California - Tax Question

[MAC1984]

Hello.

So generally there are some rather intelligent people on this board. My brother works for a major corporation here in Canada. He has been transferred down to California on a L-1 Visa. Can any of you shed some light on how this affects personal income taxes?

He is going down in mid-May, and plans to be there for at least 3 years. He's made income in Canada this year, and obviously will make some in California this year as well. How are income taxes handled?

Also, for 2015, all income will be in California. Does he still file a Canadian income tax return after that?

Thanks for your help!

 

[twir]

Hi
Not as easy as that to answer your question. Is he sent there as a Canadian employee on assignment ? or will he be a direct employee of the US entity ?

Who is his legal employer during work in California?

Canadian taxes are based on residency.

 

[wetnose]

His company should be providing relocation assistance, which comes with expert tax advice.

 

[freestuff]

Technically, he's suppose to report all world income on his Canadian tax return even if it wasn't earned in Canada (but he'll be allowed to claim a credit equivalent to what he paid in taxes to California and the US). If he wants, he can request to be classified as a Canadian non-resident for tax purposes (he must show that he doesn't have any ties to Canada anymore) and he doesn't have to pay Canadian taxes anymore (but he'll also lose any benefits he's getting in Ontario and Canada).

 

[Serpent]

Ask this question on Serbinski.com forums. In general terms, US tax kicks in only after a person resides there for more than 180 days which will be the case for him in 2014 as well as 2015. When filing a return there, he should claim credit for Canadian taxes already paid Jan - May and he'll be able to avoid double taxation on account of the US-Canada Tax Treaty.

He should file an exit/non-residence declaration with CRA(Google this) severing all tax residence ties when leaving to avoid getting assessed for taxes during his absence here for 3 years just because CRA decides he is a resident of Canada despite him not living here.

 

[interactive]

He will be filing both.
But this is a situation that seriously needs professional tax advice before, during and after.
Pretty tough to avoid the Canadian residency - you would have to have no ties - property, investments etc.
Good news is both sides allow for each other so there won't be any double taxation - different rules and rates and deductions but not paying twice on the same income.

 

[fuji]

You really do need pro advice for this. There are way too many gotchas if you try and muddle through on your own.

I have filed personal and small business taxes in Canada in fairly complex situations and felt I was completely on top of it, but as soon as multiple tax jurisdictions are involved, no matter how great an amateur accountant you think you are, the pro tip is go to a pro.

For example, if you are not careful and do things improperly you can be forced to wind up your tax advantaged retirement savings accounts (rrsp etc) and have a large chunk deemed as income and wind up with a huuuge bill. Most people don't even think about it, but the US may not recognize a Canadian RRSP as being tax protected unless you follow the proper dance routine.

A pro with cross border experience will make sure that sort of thing gets done properly so you don't get totally screwed, and you can get TOTALLY screwed if you do it wrong.

 

[interactive]

Simple example of advice needed - does he keep his house in Canada? If so, does he rent it out? If so, is it his principle residence and therefore not subject to tax upon sale.
I believe if he lives elsewhere - which would be his principle residence - he can still elect to name his Canadian property (even though he does not reside there) as his principle residence for Canadian tax purposes. Even though it is a rental property. This must be done before he leaves - not years later when selling the house. See my point - lots and lots to consider. With his rental property he would report rental income and claim deductions but NOT depreciation on the home. Claiming the depreciation (CCA) would scuttle his principle residency eligibility.

 

[peeler_feeler]

- does he keep his house in Canada? If so, does he rent it out? .

If he keeps his house in Canada, then he has NOT severed ties and will be deemed Canadian resident for tax purposes. If he rents the house then rental income has to be reported. The period that the house is rented, it no longer remains a principal residence. There are too many factors to consider outside of the house question. You really need to get professional tax advice.

 

[interactive]

Professional advice needed for sure. But "Peeler" if you leave the country and rent out your house it CAN be your principle residence for tax purposes (re the tax free sale) but you must file an election before you move out. Exactly the reason pro needed.
If he sells everything but wife & kids hang around in Canada = still Canadian resident. Even if you had no Canadian income you still report the US income and get credit for US taxes paid.

 

[Why Not?]

I was transferred to the US on an L1 visa many years ago. I simply filed a Canadian tax return for my final year in Canada and Revenue Canada adjusted all of the deductions for the portion of the year in which I worked in the country. So, if you leave at the end of May you are only entitled to 5/12 of the deductions that a regular Canadian taxpayer gets. I did not file for the 3 years I lived there and simply resumed filing when I came back.

I'd get some professional advice on the house and primary residence. However, I believe that you can make anything your primary residence again simply by moving back in for 12 months.

 

[needinit]

As you can tell form many answers more information is required first: Marital status and where are wife/kids staying if married etc; current home ownership and what would happen when gone (principle residency has limitations if not declared in advance (even if rented out), paid by a Canadian company but working in the US or the other way around (currently) and moving to US 'home' base so to speak.

I would suggest he would end up filing both Canadian and US returns - would not be doubly taxed, but timing is an issue as lump sum payments would result (ie large refund of Canadian taxes if paid and payment of US taxes instead....days of residency will apply in the first year as moving in May.

See a professional and scope out he whole scenario and implications of each .

The bottom line is he wont be doubly taxed due to the treaty, but will pay appropriate taxes for each jurisdiction.

 

[fuji]

Main thing is to consult someone BEFORE you go, as the gotchas are more about tax planning than just how to file a return.