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Tax implications for Canadians living in the US

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The US is only bordering country with Canada and thousands of individuals travel daily across the border for work and other activities. Approximately over a million Canadians live in the US. As a Canadian citizen or permanent resident if you live or work in the US you could become a US resident for tax purposes.

In this situation, tax implications are extremely important and have a significant impact on your tax liability in both countries. If you are a resident of each country based on local tax laws, special tax convention tiebreaker rules will be applied to establish the residence status in each country. This is because of the fact that you can’t be a resident of two countries for tax filing purposes.

Generally, if you live and work in the US, however, either your permanent home is in Canada or your dependents are living in Canada, you will still be treated as a resident of Canada and be liable of taxes on your world income. Tax paid in the US or other jurisdictions could be claimed as a tax credit in Canada. This situation will change if you buy your second home in the US or you dispose of your Canadian home and your dependents start living with you in the US.

Other important factors which need to be considered include;

  • other property and investments in Canada such as commercial property, RRSP, TFSA, securities, etc.
  • using provincial health services and claiming child benefits
  • disposal or renting of Canadian home to an unrelated third party, etc.
  • maintaining Canadian bank accounts & driving license

Disclaimer: This article is for general awareness purpose and is not intended to provide or replace professional advice. The author doesn’t assume any responsibility for actions taken by readers.

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Residency Test

Residency question is very important to determine the tax liability of an individual. Canadian residents are subject to Canadian tax on worldwide income whereas non-residents are subject to Canadian tax on their Canadian income only.

The most important factor to be considered while determining the residence of an individual is whether the individual maintains the residential ties with Canada while living abroad. Residential ties could be significant or secondary in nature. Following are significant residential ties:

  • dwelling place (or places);
  • spouse or common-law partner; and
  • dependents.

Secondary residential ties include:

  • personal property in Canada such as furniture, vehicle, clothing, etc.
  • social ties such as membership of Canadian recreational or religious organizations;
  • economic ties with Canada such as employment, bank account, credit cards, etc.
  • hospitalization and medical insurance coverage from a province;
  • membership in a Canadian union or professional organization;

In case of dual residency, due to local laws of both the countries, special tiebreaker rules will apply under the tax convention between both the counties. The key point in these situations is that an individual can’t be a resident of two states for tax purposes and has to be a resident of either state under the tiebreaker rules.

Conclusion:

Residency question is never easy and has to be decided on a case by case basis by looking at all factors affecting an individual’s situation. Professional advice should be obtained in these circumstances.

Disclaimer: This article is for general awareness purpose and is not intended to provide or replace professional advice. The author doesn’t assume any liability for actions taken by readers.