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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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We are in the highest tax rate in the US and are considering

Resolved Question:

We are in the highest tax rate in the US and are considering a move to Canada. I was born in Canada but am a naturalized US citizen. They told me I could live in Canada for a year to regain my Canadian citizenship and I am considering it. However, there are 2 questions:
Do they mean 6 months and a day minimum?
How much (%age) do taxes go up? I assume that any residual income I make from the US would be taxed in Canada but not in the US.
Thanks!
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
HelloCustomer

Your question really involves two different areas of expertise -- one regarding Canadian citizenship law and one regarding taxes. I can help you with the tax end of your question.

If you are a US citizen, then even if you move to Canada, you will continue to be liable for tax in the United States on your worldwide income. Any income you have from the US or from Canada or from any other country will still need to be reported on a US tax return which you will still be required to file each year.

If you move to Canada and stay there permanently, then any EARNED income which you have from another country may be excluded on your US tax return, up to the allowed annual exclusion, which is currently $91,400. However any other income you have from interest or dividends or retirement or other unearned income sources has no exclusion which applies.

You can also claim a credit on your US tax return for any taxes you pay to Canada on the same income that you report on your US return. However, if it ends up that the US tax rate is higher than the Canadian tax rate, you still in effect end up paying the higher rate.

The only way to not pay taxes on your worldwide income would be to renounce your US citizenship. In that case, your worldwide income would not be subject to tax, but any income you have from a US source continues to be taxable here in the US.

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Thank youCustomerbr />
Customer: replied 7 years ago.
If I were to become a Canadian citizen and still receiving money from the US (pension), how would that be taxed--Canadian/Ontario rates? Thanks
Expert:  Merlo replied 7 years ago.
HelloCustomer

If you become a resident of Canada and you receive a pension from a US source, the pension is taxable in Canada but is also reportable in the US. However, as long as you reside in Canada, the maximum tax that the US can impose on that pension is 15%. After calculating the tax due to the US, you could then also claim the foreign tax paid to Canada on that same pension.

The tax rate you will pay in Canada depends on your total income for the year and is based on the following brackets:

  • 15% on the first $40,726 of taxable income, +
  • 22% on the next $40,726 of taxable income (on the portion of taxable income between $40,726 and $81,452), +
  • 26% on the next $44,812 of taxable income (on the portion of taxable income between $81,452 and $126,264), +
  • 29% of taxable income over $126,264.
Since the maximum you can be taxed in the US on that pension income is 15%, and since that is the lowest rate of tax in Canada, what that means is that your US tax liability would virtually end up being zeroed out, and you would only pay tax to Canada based on the above rates.

If this was helpful please press the Accept button.

Thank youCustomerbr />

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