What do I do!?!?!

There seems to be some confusion with regards to taxes. It's actually very simple. If you work in the U.S, and come back to Canada within two years, you owe Canada the money you didn't pay to the IRS. For example, if with your salary you would have paid $20 000 in taxes to Revenue Canada, but the IRS only took $10 000, Canada would ask for the other $10 000 if you move back within two years.

When it's time to do taxes, you have to do your taxes for both countries. There's lots of tax accountants that can file for both countries, and it can get complicated if you were married and one spouse lived in the other country for awhile and you file joint returns. With the Canadian tax return, you only have to file for the part of the year that you worked in Canada. That is, you'll only have to do it once.

It's possible that Canada may ask for some taxes if they consider you a "resident." Having a valid license might even mean being a resident. That's why it's important to cut ties as much as possible. The legal arguement in my opinion is taxes pay for the services rendered by a Government. You pay taxes so your Government can build you highways, manage the economy, etc... So why should you pay taxes for services you're not using and unable to use.

In any case, doing Canadian taxes is brain dead simple. When it comes to tax time, and you look at the hundreds of different forms they have in the states, it's pretty intimidating because it's unclear what forms you should use. Non Resident Alien, Alien Resident, Resident, Non Alien Resident with no kids, etc... I suggest going to www.turbotax.com. It figures out what forms you need to fill out, you enter it, and it files it electronically and that's it. Even performs an analysis on your form to see what you've missed and possible mistakes, so it's really difficult to screw it up.

The first year might be confusing in the U.S. You have to calculate your substantial presence test. If you haven't been in the country long enough you file a 1040NR (Non-Resident), otherwise you file the normal 1040 and enter the resident alien zone. For U.S. federal income tax purposes, a resident alien of the United States is a foreign national who meets the criteria for one of the following two tests for a calendar year:


  1. The substantial presence test
  2. 2.the lawful permanent resident test (also known as the green card test)

Under the substantial presence test, an individual is classified as a resident alien based on the number of days he or she is physically present in following requirements are met:

He or she is physically present in the U.S. for at least thirty-one days in the current year; and

He or she is physically present in the U.S. for a weighted average of 183 days over a three-year testing period (comprising the current year and the two preceding years) using the following computation:

  1. . all of the days in the current year, plus
  2. .one-third (33.33%) of the days in the first preceding year, plus
  3. .one-sixth (16.67%) of the days in the second preceding year.

    Example:
      7 months in 1998 @ 1/6th35 days
      12 months 1999 @ 1/3rd121 days
      2 months in 2000 @ 100%60 days
      Total216 days

So long as you have only a simple set of investments (generic mutual funds and/or stock, etc.), it's pie. Declare yourself as NON-RESIDENT status for all Cdn stock (e.g., NT) and mutual funds you own. Declare yourself as RESIDENT status for any U.S. stock you own.

As non-resident, you will not have to fill out a Canadian tax return. Revenue Canada has a number of criteria you must satisfy to become a non resident for tax purposes. Contact them to get the relevant booklet. You *can* keep your RRSPs and Canadian bank accounts and credit cards, but still be a non-resident.

To declare yourself officially a non resident of Canada you need to fill out form NR73 which is available on the Revenue Canada website. Personally I've never filled this out because frankly I don't care, and I haven't done my Canadian taxes for the tax periods for which I was not in Canada.

What are Taxes Like?

Taxes are dependent on where you live in the United States and it can vary greatly. For example the states of Texas and Washington have no income tax, unlike California which has one of the highest income tax rates. Also state sales tax varies greatly, and even within a state the sales tax varies. For example California ranges from 5.4% to 7.4%, whereas Oregon has no states sales tax.

Ok, but you want a real life example of what could come off your pay check (note that it's not spelt cheque here). Being the incredibly nice guy that I am, I will copy the data right from a pay stub of mine:

Gross Pay$3728.92
Fed Income Tax-$790.72
Social Security Tax-$230.66
Medicare Tax-$53.94
CA State Income Tax-$252.49
CA State DI/SUI Tax-$33.47
Net Income$2357.64

So you can see that roughly 36% is taken off. However I am being taxed like a single guy with no deductions. I do this to be conservative on my tax widthheld by my employer. If you're married, and/or have kids, and/or have a house you can drastically reduce this. When it comes to tax time I easily get back $5K-$8K on my return. One of the best ways to reduce your tax is to buy property, the interest on the loan is 100% tax deductable.