Dual Canadian/USA been "Travelancing" in Asia for a year. Taxes
Hello. I'm a dual Canadian/USA citizen and my last country of residence was Canada. For years I've submitted tax returns to both CRA and IRS because USA taxes on citizenship not residence. Since I was living and working in Canada I would use the USA "Foreign Earned Income Exclusion" (FEIE) and not have to pay taxes to the USA (i.e. I'm not double taxed and pay taxes only in Canada).
At the start of 2016 I packed my bags and came here to Asia, but I brought my work with me. I'm a "travelancer" or "digital nomad". I was working for a Canadian firm on a contract basis and they have been deducting tax on each paycheck throughout 2016.
My question is this. If I was to officially change my address with CRA last year to my families address in USA, then complete a USA tax return only and still claim FEIE, could I reduce or even eliminate my taxes?
Is this possible?
Is it legal?
I don't think you can for a number of reasons: 1) Your Canadian employer has been deducting tax on each pay period (they wouldn't be doing that otherwise), 2) you didn't file your 2015 tax return showing a departure date for Canada and providing them wiht a US address.
However, you might be able to file a Canadian tax return for 2016 for the period that you were still in Canada, and indicate on the tax return date of departure and your US address, making only a small portion of your 2016 taxable in Canada, with the remainder in the USA. Problem is you were not in the USA for any of 2016 and you didn't work there. CRA and IRS share data....so how can that work?
Finally, when you return from Asia, where are you returning too? FWIW, you cannot claim FEIE if you didn't pay those taxes to CRA, i.e. you can only claim what you paid.
All in all, you will need to talk to a cross-border tax accountant to find out best how to structure your affairs. An anonymous internet forum is not professional advice.
Thanks for the feedback. Yes I will speak to a cross border accountant, just wanted to see if I could get any info here first. Sounds like I might be wishful thinking but worth checking nonetheless.
Originally Posted by AltaRed
Two main issues I'd be looking into.
1) You have to be resident somewhere for tax purposes (even if that country is exempt from income tax)
2) Your income from your Canadian employer will almost certainly be taxable somewhere, either in Canada or the Asian country you are resident in. This will depend on whether there is a tax treaty between Canada and your country of residence, how that treaty deals with employment income and how that fits the facts of your situation.
From the US side of things, I wouldn't expect much to change re: your filing. There's a good chance your FEIE would still apply.
If it is employment income (the OP does say it's contracts so maybe not) - it is most likely taxable in Canada. CRA explicitly lists employment income as a Part I tax that a NR must correctly pay.
Originally Posted by Nerd Investor
I am also not clear on what difference the tax treaty will make. The few I have read have usually had credits being issued by the other country (ex. the US) t reduce, if not eliminate the double taxation. If there are examples of treaties that remove the Canadian tax on employment income - I am interested in examples.
The "contract" part seems a more likely way to potentially be in a better spot, Canadian tax wise. Assuming CRA doesn't have criteria to determine the OP is really an employee instead of a genuine contractor.
So the FEIE is not connected to the Canada - US tax treaty?
Originally Posted by Nerd Investor
While this forum will give a bit of an idea of the lay of the land or questions to confirm ... a tax expert, especially for any US to Asian country wrinkles is the best bet.
Last edited by Eclectic12; 2017-01-11 at 11:19 AM.
Reason: added PS
To elaborate on what I mean, the US - Canada tax treaty for example (the only one I'm decently well versed in) dictates that employment income is taxable in the country where you are resident unless that employment is "exercised" in the other country. So if a Canadian company had someone working exclusively in a US location, US would have first taxation rights on that company. I have no idea how this will work in the op's situation, he'll have to sit down with an accountant and drill down through the facts.
Originally Posted by Eclectic12
And yes, the Foreign Earned Income Exclusion is completely separate from the treaty.
We considered leaving Canada for two years and relocating to a tax free or low tax country. We planned to travel, we were selling our home to downsize, and we were in a situation where we were looking at two, possibly three very high income years-with associated taxes.
Our accountant went through some basics with us and then said that if we moved forward her advice would be to see an expert. For a start she mentioned severing all financial ties, ie investment accounts, RRSP's, bank accounts, etc.. Selling cars, etc. When some of her clients had been audited these were just a few of the things that CRA looked at. We decided to abandon this idea.
One challenge that some people have with CRA is the fact that it sometimes the questions, re-assessments can arrive two or three years after a return has been filed. After the passage of time and no feedback from CRA some people may feel that they 'are out of the woods' and that CRA has accepted their data. This is not so.
Last edited by ian; 2017-01-14 at 10:33 AM.
Out of the blue, I received re-assessments going back 11 years.
Originally Posted by ian
Absolutely. Just ask some of those folks who got caught in those' too good to be true' inflated charitable donation scams.
Tags for this Thread