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DUAL RESIDENCY FOR TAX? I am a dual citizen, Canada/ US. I…

DUAL RESIDENCY FOR TAX? I...
DUAL RESIDENCY FOR TAX? I am a dual citizen, Canada/ US. I am 74, retired, and my wife and I spend 6 months in US (AZ) and 6 months in Canada. Can I file each form (US 1040/ CAN T1) as a resident of the respective country? The bulk of my pension and stock income (90%) is Canadian. I pay health care premiums to both countries and receive health care services in both countries (Medicare-US and MSP-Canada) I receive federal pensions (small Soc Sec and larger CPP) from both countries. I file Canada first and then take the foreign tax credit on my 1040. It would be slightly cheaper to file as a US non-resident, because the US-CAN tax treaty does not help as much on my AZ-140. However, my Canadian wife has just passed her US naturalization test and will take her US citizenship oath in less than 2 months, and I would prefer to file as US residents. Would filing our 1040 as non-residents for tax purposes jeopardize her US citizenship?
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3/6/2018
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,046
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

You say that you are dual residents. For the US, do you have a green card? Or are you a citizen? Often people confuse residency for tax purposes with residency for immigration purposes.

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Customer reply replied 1 month ago
Hi Rog, I am a US citizen and a Canadian citizen. My wife is a Canadian citizen, has her US permanent residency card and will be a naturalized US citizen within two months. She passed her US naturaliztion test last week and will have her swearing-in oath ceremony within two months. At that point we will both be dual citizens, US & Canada with passports from both countries. Thanks, Marshall

Marshall:

I have been working in international taxation for over 31 years. This is a situation I have seen before.

The United States, unlike any other country in the world, taxes based on citizenship, and not residency. So as a US citizen, you have to file a return each year and report your world-wide income. Why would you want to file as Canadian residents? With the new US tax law, your income tax rate should be less than the Canadian tax rate. Your stocks can be taxed as low as 15% for qualified dividends and long-term capital gains.

You cannot take a foreign tax credit for anything that is US sourced, even though it may be taxed in Canada. If you decided to choose the US as your "tax base" you would be able to exclude many items, such as your Canadian pensions/RSSP/CPP, etc, from Canadian taxes. So you would largely limit your tax costs to one country.

We also have a Social Security agreement with Canada, wherein you can get additional US SSI for your Canadian service.

If I have some more specific information, I can run some actual numbers for you.

Thanks!

Roger

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Customer reply replied 1 month ago
Roger, I am aware of what you say. Canada, like the US taxes on world-wide income, but it is based on residency. My “residency status” for the CRA is a “Factual Resident” in Canada because I maintain residential ties such as my home in Canada, adult children and grandchildren in Canada, personal property including 2 of my cars registered in Canada and social ties to Canada. I also own a home in AZ and have two cars registered in AZ, some family in the US and social ties in the US. Even if my wife and I were to sever almost all of our residential ties to Canada, and become “non-residents” or “deemed non-residents” of Canada, we would still have to report income from Canadian sources and pay taxes on that income to Canada, which is 90% of our income. And yes, we pay more tax that way as evidenced in the large accumulated foreign tax credit over many years of 1040 Form 1116’s. As retired “snowbirds,” we spend the six winter months living in Arizona and the six summer months in British Columbia. My original question remains, can I put my Canadian residential address on my Canadian return and my US residential address on my US return, and does this have any implications for social security and health care in either country, or upon my wife’s imminent US naturalization?
FYI my province, BC, allows me to be out of Province up to 7 months annually, and still maintain my health care coverage, as long as I maintain my health care payments 12 months per year, which I do. I depend upon Medicare, parts A and B for my health coverage while in the US and I maintain US payments 12 months per year.

In answer to your question, the addresses will not have any affect on your wife's upcoming naturalization. You can use whatever address you would like. I have many expatriates who use the addresses of US relatives when working outside of the United States.

If I may play the devil's advocate for a bit. Even though you have very close ties with both countries, there are tie-breaker provisions within the US-Canada tax treaty that will give you residency in one country or the other, so you do not have to have two residences. Additionally while the income may be sourced from one country or the other, again there are treaty articles that will allow one country to tax it. So a case could be made to limit the amount of Canadian tax you pay.

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,046
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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