Navigating the complex world of taxation in Canada can be challenging, especially when dealing with residency status and its implications on your tax obligations.
If you’re a resident, you have to declare your worldwide income and pay taxes on it. If you’re a non-resident, you’re taxed only on your Canadian-sourced income. Therefore, it is essential to determine your official residency status according to the rules of the Canada Revenue Agency (CRA), so you can file your taxes the right way without over- or underpaying.
Determining your residency status isn’t always straightforward since you could be considering many factors. In this article, we will discuss the difference between factual and deemed residence and how it affects cross-border taxes. We will explain what a deemed and factual residency in Canada is, the circumstances that may lead to a particular status, and the tax implications associated with it.
Basic Set of Rules to Determine Residency Status
First up, let’s talk about being a resident. This means you “live in Canada” for tax purposes, whether or not you actually sleep in a bed on Canadian soil and have to file and pay income tax as a resident of Canada. CRA determines resident status case-by-case, but some common factors may give you a clue about your residency status for tax purposes.
It would help if you considered the following question to determine it:
The combination of these and some other factors is thoroughly reviewed. The factors that signify your closest ties determine the country of your residence.
What is a Factual or Deemed Non-Resident of Canada?
Factual or deemed non-residents, from the CRA’s point of view, are people who have some kind of tie to Canada but are considered non-residents for tax purposes. Factual or deemed residents are both categories of residents; the difference is how taxes are filed for each.
For instance, you might have a Canadian passport, but you’ve been living and working in another country for years and don’t have any significant residential ties to Canada anymore. Or, you might have some residential ties, but because of a tax treaty with another country, the CRA considers you a resident of that country—and a deemed non-resident of Canada.
Factual Resident of Canada and Tax Implications
As a factual resident, you’re taxed as if you’ve never left the country, even if you spend time living or working abroad.
When you file your taxes, you:
One factor that matters is what the CRA calls “significant residential ties.” If any of these apply to you, you might be a factual resident.
Deemed Resident of Canada and Tax Implications
Deemed residents are people who aren’t factual residents of Canada, but still have enough ties to Canada that the CRA decides to make things official.
There are two categories of deemed residents:
If you’re a deemed resident of Canada, you file your taxes with the 5013-G Income Tax and Benefit Guide for Non-Residents and Deemed Residents of Canada. That means a few things:
Are international students factual or deemed residents of Canada?
International students in Canada have to follow the same rules as everyone else. You are a resident of Canada if you have significant residential ties, or if you spend 183 or more days a year in the country. Depending on your situation, you could be a deemed resident or a factual resident.
Cross Border Taxes
Many individuals residing on either side of the border may be employed and are performing duties in other countries. Filing cross-border taxes can be a chore, these are complicated matters and it would be best if you contact an accounting firm that has experience in cross-border taxes so they can take care of it all and leave you free to take care of your business.
The team of tax expert accountants at Filing Taxes is dedicated to providing the CRA with accurate and transparent corporation nil tax returns for your company - for as many years as you need. We work with you throughout the year, not just during tax season, to fully leverage our expertise to benefit your business and help you grow. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Cross-border tax refers to the taxation considerations and implications that arise when individuals, businesses, or investments operate across national borders.
Cross-border tax planning is a specialized form of tax mitigation that helps individuals and businesses to minimize their exposure to double taxation. It involves navigating the complex web of tax laws and regulations across borders and addressing issues such as income reporting, deductions, credits, and compliance requirements.
Working with a cross-border tax accountant in Toronto will help ease your tax burden, avoid expensive mistakes, get credits and deductions that you qualify for, and get help and advice all year round. Hiring a qualified tax accountant will ensure you comply with your tax obligations. Below are the benefits of hiring a cross-border tax accountant in Toronto:
Maximize Your Cross Border Tax Savings
Hiring an international tax preparer is a great way to maximize your international tax savings. An international tax accountant will help you identify and reduce tax liabilities, reducing the amount of taxes you owe.
It can also create strategies to help you save money on taxes by optimizing deductions while keeping costs to a minimum. They can help you navigate the complexities of filing returns in multiple countries, helping you keep in compliance with different tax laws.
If you don't know where to start, click for international tax services here!
Avoid Costly Errors
There are extensive tax compliance and information reporting requirements specific to cross-border businesses in both Canada and the US. Non-compliance or errors can lead to hefty monetary penalties.
A qualified cross-border tax accountant will be able to ensure that your tax compliance and international reporting forms both in the US and Canada are considered and filed on a timely basis so that you can avoid the significant costs of errors and non-compliance.
Take Advantage of Tax Planning Strategies
To ensure the maximum return, it is important to take advantage of tax strategies with the help of an experienced cross-border tax accountant in Toronto.
A cross-border tax accountant in Toronto will have a deep understanding of cross-border tax laws and also have expertise in how to navigate differences between countries to ensure that border-crossing tax compliance happens successfully and seamlessly.
A tax accountant can also steer businesses and individuals to make proper financial decisions in crucial areas. This may include estate planning, retirement planning, small business planning, and investment management. Canadians who own U.S. real estate may find this quite useful to help them avoid pitfalls associated with U.S. taxes when they sell off their property.
Your cross-border tax advisor can help you with important life events like the purchase of real estate, marriage, divorce, and the birth of a child. Most people diminish or forfeit their future earnings because they did not make smart moves at the right moment with the help of a qualified cross-border advisor.
Eases the Tax Burden
If you are trying to take on cross-border tax filing alone, it can be complicated, stressful, and time-consuming. Hiring a professional cross-border accountant in Toronto will eliminate unnecessary stress. An accountant will keep track of your tax return deadlines, taking on the bulk of this work so you don’t need to remember these details as your accountant will have this under control. You will reduce the burden on yourself and ensure to focus on tasks that you are better at doing.
Better Financial Security
Every business owner wants to run business operations efficiently to maximize profits. Cross-border tax accountants in Toronto will help you do that by developing effective strategies for saving funds and enhancing profits through investments.
It is beneficial to take the advice and tips from experienced cross-border tax accountants in Toronto when creating a sound cross-border tax plan to help minimize your exposure to double taxation.
Additionally, it may be incredibly beneficial to hire a cross-border tax accountant in Toronto who can offer expertise in managing assets in both the U.S. and Canada for optimal benefits, especially since there will be situations where the Canadian and US laws could conflict or interact in unexpected ways.
Assistance and Advice All Year Round
When you work with a tax accountant in Toronto, they help you fix all technical and legal issues related to your finances before the tax year. This will ensure you do not face audits or penalties during the tax season. You can approach them at any time of the year and not just during the tax season. They can answer crucial questions about your financial health and how it relates to taxes and will help in positioning you properly. This will ensure that you are not just a tax filer who only communicates with their tax accountant once every year to give them your reporting slips.
Hire A Cross-Border Tax Accountant Today
US – Canada tax accountants are rare, and firms have cross-border tax specialists are hard to find. Working with cross-border tax specialists is essential as you may reap numerous benefits from their services. These professionals will optimize your returns and ensure that you are tax-compliant in both countries. They also have training and experience to handle even the most sophisticated tax situations and will help protect clients against tax penalties. A good accounting firm in Toronto will offer consultation, preparation, and planning services for cross-border taxation.
Don’t let the complexities of cross-border taxes get in the way of your ambitions. Contact a professional cross-border tax accountant today to ensure the best possible outcome.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
If you are a Canadian resident and make foreign income, you are subject to tax duty to the CRA. Wait, but I’ve already been taxed by the country where the income is made! How is it fair?…as some of you would ask. Relax, reporting your foreign income to the CRA doesn’t mean double taxation. Rather, it is to inform the Canadian government of your sources of income to avoid causing unnecessary confusion or suspicion, not to mention the benefits of claiming the federal foreign tax credits that will help reduce some of your other tax obligations.
So, What is Federal Foreign Tax Credit?
If you pay business or non-business taxes on an income made in a foreign country, you can claim the Federal Foreign Tax Credit once you have reported the income. If such taxes are paid to multiple countries, each tallying more than $200, you need to calculate the tax to each source of income separately before reporting them together on the T2209 form.
Does contribution to foreign public pension plans qualify for Federal Foreign Tax Credit?
Yes, and they are considered non-business income tax as per the CRA given the concern that you will never benefit from that sum of money made while you work temporarily under foreign legislation. This rule of thumb applies to the Federal Insurance Contributions Act (FICA), which dictates that under U.S. law, all employees are subject to payroll tax regardless of residency status. If you contribute to the FICA, you’re eligible for Federal Foreign Tax Credit.
Is it the same with all other countries?
Unfortunately, no. The credit varies between countries that have signed tax treaties with Canada and those that haven’t. Please consult us for details if you aren’t sure.
Is there a provincial foreign tax credit?
By the same token that you pay both federal and provincial income taxes, the foreign tax credit is also applicable province-wide, on the caveats that first, your federal foreign tax credit on non-business income is less than the tax you have paid to a foreign country, and two, you do not reside in Quebec. You can claim Provincial foreign tax credit by filling out the T2036 form.
Last but not least, given that you are reporting your taxes to the CRA, be sure to apply the conversion rate at the time of the transaction, not the day you file your taxes when you calculate them in Canadian dollars.
Find Out More
This article includes a general summary of tax rules. Need specific tax advice? Hire a Professional Accountant and get the best working for you.
Filing Taxes concisely deals with several complex issues; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Are you interested in obtaining an Individual Taxpayer Identification Number? Read on to find out what an ITIN (Individual Taxpayer Identification Number) is and how you can apply for one. Please note, that this number is not a replacement for the Social Security Number (SSN). This information will teach you how to apply for an IRS Individual Taxpayer Identification Number in Canada.
What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a number that is assigned to non-resident aliens of the U.S. who earn income in the U.S. This number is not a replacement for the Social Security Number (SSN) and does not grant any residency status in the U.S. (unlike a green card or work visa). There are new requirements for Canadians to obtain a U.S. tax I.D. number.
Previously, the IRS would issue an ITIN applicant an ITIN card. However, due to the confusion and similarity to an SSN card, the IRS has amended this policy and now only issues a confirmation letter to Canadians applying for a tax I.D. number in the U.S.
If you are eligible for an SSN, you must first apply for one. Persons eligible to receive a Social Security Number are not eligible to receive an ITIN. If the Social Security Administration denies the applicant’s request for an SSN they will issue a letter of denial. That letter must be attached to the Form W-7 (application for an ITIN) when it is submitted to the IRS.
Who Should Apply for an ITIN?
An ITIN can be applied for by a foreign U.S. taxpayer who is not eligible for a Social Security number and must provide a taxpayer identification number. Examples include:
An ITIN will also be required when selling a U.S. real property in the following situations:
Can apply for a U.S. Tax ID Number help with taxes?
As a Canadian earning income in the U.S., the tax I.D. number provides several key benefits. These include:
In addition to these benefits, the IRS stipulates that the ITIN is required to file your U.S. Non-Resident Tax Return (1040-NR), process a tax refund, and withhold taxes on certain types of income in the U.S.
How can Canadians get a tax identification number (ITIN)?
To properly apply for your ITIN, you must prepare Form W-7 and present proof of residence in Canada. The IRS streamlined the number of documents it accepts as proof of identity and foreign status to obtain an ITIN. There are 13 acceptable documents.
If you do not provide these documents, your ITIN Application will be denied.
As a cross-border tax specialist operating in Mississauga, we can help you with:
Please note that Form W-7 for your tax ID number is usually only accepted when it is submitted with your Non-Resident U.S. tax return. However, there are certain exceptions to this rule that can help expedite the application process.
Why Should I Have An ITIN?
ITIN or Individual Tax Identification Number; It is a type of individual tax identification number for people who do not have an SSN. ITIN helps you open a U.S. bank account, open a Paypal, Stripe, or Amazon account, file a tax return, and get your credit score
Can A Canadian Get A Us Tax Number?
U.S Taxpayers who do not have a U.S. identification number to obtain an ITIN are required to possess this ID number. They file their annual U.S. Social Security Statement (SSN) with the IRS. If you have any U.S. income, you must file a tax return. In this way, rental income and gains and losses from property sales are reported, rather than relying on income generated from rental units.
How Do I Get A Us Tax Identification Number?
Using the IRS’s Interactive Tax Assistant tool, you can determine whether you need to file for an Individual Taxpayer Identification Number (ITIN). An ITIN is obtained through the application process conducted by IRS Form W-7, IRS Application for Individual Taxpayer Identification Number.
How Does A Canadian Get A Us Tax Id?
What steps do Canadians need to follow to receive an id number (ITIN)? Form W-7 and a Canada residence proof of residency must be submitted before you can establish your residency in Canada to properly obtain your ITIN. ITINs are available by offering fewer documents the IRS accepts as proof of identity and nationality. It is a three-page, thirteen document format.
How Can I Check My ITIN Status?
You must notify the IRS via telephone at 1-800-829-1040 (IRS Phone Number) at the end of the application process if any data appears.
Does Everyone Have A Tax Id Number?
(ITIN) is a number assigned by the IRS to individuals who file IRS returns? The owner of something other than the actual owner, or an individual engaged in an international scheme would qualify for the exemption. To conduct business as a sole proprietor, you need an Employer Identification Number (EIN).
Bottom Line
If you are planning to file your U.S Taxes with Filing Taxes, please do not hesitate to contact us today at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Americans moving out of the U.S. to countries like Canada are still required to file U.S. tax returns in addition to various other disclosures, forms, and treaty elections each year.
Whether it's Canadians returning to Canada after residing in the U.S. for a number of years, or simply Americans retiring to Canada, there is a steady flow of Americans crossing into Canadian cities.
Outlined below are important issues to make clients aware of when moving to Canada from the U.S.:
As an American Citizen or Green Card holder, you're required to file US 1040 income tax returns regardless of whether or not you physically live in the US. Therefore, as an American living in Canada, you'll be required to file both a Canadian income tax return and a 1040 U.S. income tax return each year after entering Canada.
Even though dual filing would be required, in most cases you won't be subject to double tax as Canada- U.S. Income Tax Treaty will prevent such an outcome.
Both the Canada Revenue Agency (CRA) and the IRS have specific foreign income and asset disclosures that need to be filed if certain thresholds are met. As an American moving to Canada, your client will often need to understand these requirements.
The IRS requires that anyone with foreign investment or financial assets that exceed $10,000 in aggregate (calculated by adding the highest balances in all non-US accounts together) file form 114 (also known as FBAR filings) to report these accounts. This form is filed separately with the department. An additional form 8938, very similar to the FBAR, is required in many other instances. However, the threshold balances for filing form 8938 are higher than form 114.
Canada has similar disclosures for those that hold non-Canadian investment assets with a cost that exceeds $100,000. Form T1135 reports non-Canadian investment accounts, cash, real estate, and other financial assets each year directly to the CRA.
Penalties for late filing of form 114 and the Canadian T1135 are significant and should be reviewed each year to ensure they have been filed accurately and on time.
Clients moving to Canada often have a variety of different investments including IRAs, ROTH IRAs, 401(k)s, and non-registered accounts. Many of which are not native to Canada and require specific planning and consideration before moving up North.
Some planning considerations include:
Clients will only be taxable in Canada on their income once they move to Canada and become Canadian tax residents. As such, there is often an opportunity to pay out certain types of income before entering Canada to save on additional Canadian tax. Some examples of amounts that may be considered before moving to Canada include:
You will often not be able to sell their principal residence before actually moving to Canada. Although the sale of a U.S. principal residence property will likely not attract additional Canadian tax, ensuring the property is sold shortly after moving to Canada is extremely important.
You need to have lived in their principal residence for 2 out of the last 5 years to ensure you can take advantage of the U.S. principal residence exclusion. Once you move to Canada it will be imperative that you sell your residence to ensure you don't miss out on the $250,000 or $500,000 capital gain exemption amount.
As you can see, clients moving to Canada from the U.S. have significant compliance and planning issues that need to be reviewed well before their move actually takes place. Engaging a competent cross-border accountant to help with the move is almost always a smart decision.
Have dual citizenship in the U.S. and Canada? Filing Taxes is here to help with your taxes. Filing taxes in one country is enough to give anyone a headache, and it only gets more complicated for dual citizens of the U.S. and Canada. But no matter your situation, we’ve got a tax solution for you.
If you need any advice on tax-saving strategies from an expert tax accountant in Toronto, Mississauga, Oakville, and Hamilton feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
Dual citizenship provides many benefits, including job mobility and voting rights. It provides a platform for individuals to travel for long periods between countries for personal and professional reasons, without restrictions and without being required to apply for a visa.
Canada and the United States have different tax filing requirements and regulations depending on the citizenship and residency of the taxpayer. As mentioned above, in Canada, one’s tax filing requirements depend on the residency of the taxpayer, while in the United States, the tax filing requirements are based on your U.S. person status, such as U.S. citizenship. For over one million U.S. citizens living in Canada, they would have to file income tax returns in both countries. When it comes to holding dual citizenship, you have to consider the tax factors associated with dual citizenship status.
As a U.S./Canada dual citizen, taxes can get tricky — dual citizens have few more tax and financial challenges than the typical resident that affect not only taxes on your wages, but taxes on investments, pensions, and properties as well.
Cross-border tax for Dual Citizens of the U.S. and Canada can get very complex and challenging especially for dual citizens residing in Canada. Dual citizenship has its perks but can become difficult when it comes to filing taxes in both the U.S. and Canada due to double taxation, foreign reporting obligation, investments, retirement, and continuous upkeep of the laws. Let us overview the three main issues an individual could undergo holding dual citizenship.
Holders of Canadian bank accounts, Canadian retirement accounts, and other Canadian financial assets are required to file and report FBAR (Foreign Bank Account Report (FinCen Form 114)) and Form 8938 (Statement of Specified Foreign Financial Assets). Foreign Account Tax Compliance Act (FATCA) governs the foreign reporting for both FBAR and form 8938.
There are heft penalties for not reporting foreign accounts and assets which can go up to 50% of the total account value not reported.
It is a matter of extreme disappointment for the dual U.S. Canadian citizen that some of the tax-free investment, retirement, and saving accounts in Canada are not tax-free in the U.S. If you have a Canadian Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA), or a Registered Disability Savings Plan (RDSP), your incomes are subject to U.S. taxes.
There is hope through US Canada Tax Treaty, which provides special tax treatment to Canadian pensions and retirement accounts. The special treatment comes in the form of whether a reeducate tax rate is applied, tax exemption of certain types of income, and tax credit. In the majority of cases, a dual citizen is allowed to defer U.S. tax on undisputed earnings from an RRSP, RRIF, LIRA, and other similar Canadian plans.
As per law, Canadian retirement and investment accounts are subject to report Foreign Bank and Financial Accounts (FBAR) and FATCA (Foreign Account Tax Compliance Act). Likewise, your Canadian Pension and Retirement plans require reporting on form 1040.
IRS has designed a series of Offshore Voluntary Disclosure Programs (OVDP)-Streamlined Foreign Offshore Procedures. This program allows overseas Americans to file overdue U.S tax returns and provide them an opportunity to bypass the penalties by getting a full penalty waiver and coming into compliance.
Following are two requirements for the Streamlined Foreign Offshore program:
An applicant is non-willful; if you unknowingly violated the FBAR laws and failed to file the U.S tax returns.
An applicant is a foreign resident; must have resided outside of the U.S for at least 330-days in at least one of the last three tax years that passed. Thus, must not have lived in the U.S. for at least one of the three most current tax years.
Have dual citizenship in the U.S. and Canada? Filing Taxes is here to help with your taxes. Tax filing in one country is enough to give anyone a headache, and it only gets more complicated for dual citizens of the U.S. and Canada. But no matter your situation, we’ve got a tax solution for you.
Tax planning allows the taxpayer to use various tax exemptions, deductions, and benefits to minimize their tax liability. Thus it is a cumulative result of various income tax planning techniques. All the above-mentioned tax planning techniques should be considered only after consultation with our expert Toronto income tax planning tax professionals.
If you need any advice on tax-saving strategies from an expert tax accountant in Toronto, Mississauga, Oakville, and Hamilton feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.
This will close in 0 seconds
