# Working in US, tax resident of Canada



## james4beach (Nov 15, 2012)

I'm currently obsessed with this topic because I've been meeting with my accountant and preparing tax docs for both US and Canada. I've learned way too much about US taxes. _They're a disaster._ The first deadlines are also approaching fast, because forms to disclose your TFSA to the I.R.S. are due March 15.

I'm happy to help others who are in the same situation as me -- send me private messages or post here to ask. Disclaimer: I'm not an expert. I have been seeing an expert, but everyone's situation is unique. My situation has these parameters, so I can help you if yours matches this:


 Canadian citizen who still has a permanent home/residence in Canada
 Intends to return to Canada within a few years
 Not a US citizen, not a green card holder, will not get one
 Working in the USA for long durations, such that US 'substantial presence test' is met
 Want to remain a Canadian tax resident instead of filing Canadian departure taxes
 Want to be a US non-resident for tax purposes (but still are a 'US resident' in other ways)

The starting point for my tax approach is the US-Canada tax treaty. The treaty _overrides_ the definition of resident for tax purposes. It has specific criteria that can be used by a Canadian resident to override the normal requirement to file as a US resident. Thus, a Canadian can invoke the tax treaty by filing US form 8833 to invoke the "tie breaker" clause of the treaty. This allows you to file a 1040NR, non-resident US tax return. In Canada, very little changes: you file a normal tax return along with foreign tax credits for what you paid to the US. There is no double-taxation.

People keep wondering why I would do this. "But taxes are lower in the US! Just rid yourself of Canadian taxes". Nope; depends on the state and province. Taxes in Canada can be lower than the US. Also I don't want to file departure taxes from Canada just to reverse the position (with lots of hassle!) in a couple years. Finally, I want to minimize my interaction with the I.R.S. as US tax laws are more complex and the I.R.S. is more aggressive than the CRA. I have heard many people say that after dealing with the I.R.S., they realize what a joy it is to file taxes in Canada.


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## james4beach (Nov 15, 2012)

I should have mentioned another criteria: the *TN status*, which is meant for a temporary US stay. It is therefore consistent with this strategy of filing as a Canadian tax resident and US non-resident under the treaty.

Also be aware that if you approach US-based accountants, they generally don't like this method: in their view, nobody in their right mind would file Canadian taxes if they don't have to, and nobody in their right mind would ever want to leave the USA after coming here so you might as well move your tax home to the US.


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## Baffled (Mar 29, 2015)

*fire + brim stone*

I came across your post and I am curious as to how you would invoke the tie-breaker rules in your case, which is very similar to my spouse' situation. All the bullet points you listed are exactly the same, except that his visa is now an H1B, though he initially entered as a TN in 2013. The visa change is his employer's decision - I guess it's mainly due to the paperwork involved. 

In the tie-breaker rules, wouldn't "habitual abode" make you a US tax resident? Based on what I have read, habitual abode is "where the individual spends the majority of their time".

Last year, a cross-border "expert" also told us that tie-breaker rule#2 - centre of vital interest - makes him a US tax resident because his centre of economic interest is the US because due to his being employed there, although his personal interests are in Canada.

In your approach (Form 8833), have you had any issues with the IRS so far?


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## AltaRed (Jun 8, 2009)

Personally, I think it could go either way regarding whether one is a tax resident of USA or not. While a TN is only valid for a year at a time (I think), one can get TN renewals for some time. I had a slightly different situation circa year 2000 when I worked full time in Alaska but on single status. My family and my owned residence remained in Canada and THAT was the tie breaker.

The tie breaking rules must be looked at closely with a tax accountant available to defend the case.... as it happened in my case. PriceWaterhouse had to argue on my behalf.


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## james4beach (Nov 15, 2012)

Many times these things can go either way. I got advice from an accountant who is certified in the US, frequently does dual-country returns, and they told me that my situation is defensible for tie-breaker as Canadian resident. If the IRS challenges, my accountant will be able to make the argument (we could still be denied of course). This is the first year I've been in the US and the first time I'm filing, so I don't yet know what the outcome will be.

I have read analyses of a number of court cases where people have dual residency and there's a dispute over the tie-breaker. It generally comes down to the balance of vital interests and which one looks bigger; where is the bigger footprint? In review of the previous cases, I found some things are taken quite seriously: driver's license, friends/romantic partners, location of bank accounts, location of investments, clubs and memberships, where your cars are.

If you read the wording of the tie breaker clause, habitual abode is one element, but so is (worded something like) "where a permanent home is available to him". I have a permanent home available to me in Canada. It's been my home for many years and continues to be my address on record for all kinds of things: bank accounts, services, credit cards. My driver's license is in Canada, and I will not obtain a US based driver's license.

So if we're talking "where is his permanent home", the Canadian one is much more permanent than my US one. Why? Because I've had it for a long time. I can return there in a pinch (and I'm a citizen). The US apartment on the other hand... I will only be there as long as I'm employed. I can't stay in the US if my job ends. I can't even access this home if they deny me border crossing, which could happen at any time.

I don't have cars, or a girlfriend/wife, but just about everything else is centered in Canada. Center of vital interest further supports my Canadian residency. The majority of my bank accounts are physically located within a few blocks of my Canadian home. True, I'm employed in the US, but I also have very significant assets and they're all in Canada (including belongings). If you were to look at my two homes the amount of "stuff" associated with my Canadian home far exceeds my US home. Practically all of my wealth is in Canada. There's also my social circles, friends, and even phone numbers... in all of these I have a greater Canadian presence than an American one.

The TN also helps the argument because it * is * a temporary status. Thus (and we wrote this into the 8833 text) I intend to be in the US temporarily, as evidenced by my TN status, and plan to return to my permanent home in Canada. I will never get a home or a mortgage in the US because, well, I don't plan to be here permanently. I'm also careful to keep my US footprint minimal.

If you were to see my apartment here in the US, you wouldn't have much doubt I'm just a temporary visitor here. I have minimal things. I have a bank account and credit card in the US, and a small investment account for our retirement plan. It pales in comparison to the four credit cards I have in Canada, not to mention accounts with EVERY big bank, and large investment accounts with our big bank brokerages. No contest


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## james4beach (Nov 15, 2012)

Baffled said:


> In the tie-breaker rules, wouldn't "habitual abode" make you a US tax resident? Based on what I have read, habitual abode is "where the individual spends the majority of their time".


To be more technical than my above post. We're dealing with paragraph 2 of the treaty. (a) says "in which he has a permanent home available" so I'd start by arguing my only permanent home is in Canada. The legal text then says if there's a permanent home in both, then it's determined by whichever has greater personal and economic relations - center of vital interests. (b) says _if the center cannot be determined_, then it's the habitual abode. In my case I think (a) will seal the deal as Canadian resident so habitual abode is not the deciding factor.



> In your approach (Form 8833), have you had any issues with the IRS so far?


Not yet, but it's the first time I'm filing. All I can hope is that the IRS is reasonable here and doesn't question it. My accountant can help defend it and I think fundamentally I am making the proper and honest claim.

I really hope the US doesn't insist I'm a resident. I am * not * going to do a tax departure from Canada, only to go and reverse it in 2 years when my job ends (I'm in a consulting area). That would be an extremely painful series of tax transitions. The accounting costs would balloon so much, I may just quit my US job at that point and leave the country.


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## capricorn (Dec 3, 2013)

Hi Baffled, is it the case that you are in Canada and your spouse is in US?

I am in same boat. But, I am in US and spouse and kids are in Canada.
I transferred from TN to H1B. But, H1B is dual intent visa. So, you can still claim closer ties to Canada with (a) permanent house owned in Canada and (b) spouse and kids in Canada.

off course, just my opinion. IRS can disagree.


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## james4beach (Nov 15, 2012)

I think that having your spouse and kids in Canada is a big deal for indicating that Canada is one's center of vital interests.

Although I don't have kids, I would similarly argue in my case that my entire family is in Canada.


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## Guban (Jul 5, 2011)

@james. I was surprised that you were going to take a treaty position when you first posted it, many months ago. I do have some thoughts about what you wrote in this thread.

I would suggest that you have a permanent dwelling in both Canada and the US. Just because the one you live in now is rented, doesn't it make it less yours. If this was the case, renting would be distinguished from owning in the treaty. I am assuming that your Canadian home is not rented out to somebody else at arms length. Otherwise, it would not be available to you, and would not count as your dwelling. The fact that you will be in the US suggests to me that the US is your habitual abode. Citizenship is on the tie breaker list, and I recall that it was in a different category. One that is to be counted if the prior ones fail to resolve residency. I suspect that it falls so late in the factors because using citizenship would be too simple. Anyone who is not a dual citizen and has a home in both countries would then default to citizenship, as entry can always be denied to a noncitizen.

I thought that I understood that the centre of vital interest to be where the job was before social and other relationships, and since your income basically comes from the US exclusively, would also point to being an American resident.

I completely understand why you would not want to cease being a Canadian resident, and also why you would not want to become American.

Thanks for posting this, and sharing your experiences. I look forward to hearing how this all turns out, but do note that there are lots of errors in tax returns that are not caught.


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## AltaRed (Jun 8, 2009)

capricorn said:


> But, I am in US and spouse and kids are in Canada.
> I transferred from TN to H1B. But, H1B is dual intent visa. So, you can still claim closer ties to Canada with (a) permanent house owned in Canada and (b) spouse and kids in Canada.


Having a spouse and children in Canada is a bonafide tie breaker regardless of Visa type (I had an L1 Visa)


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## Eclectic12 (Oct 20, 2010)

Guban said:


> ... I am assuming that your Canadian home is not rented out to somebody else at arms length. Otherwise, it would not be available to you, and would not count as your dwelling.


It certainly weakens one's argument but according to CRA, does not automatically rule it out as they say:


> .. if an individual leases a dwelling place located in Canada to a third party on arm's-length terms and conditions, the CRA will take into account all of the circumstances of the situation (including the relationship between the individual and the third party, the real estate market at the time of the individual's departure from Canada, and the purpose of the stay abroad), and may consider the dwelling place not to be a significant residential tie with Canada except when taken together with other residential ties


http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s5/f1/s5-f1-c1-eng.html

Interestingly ... in addition to the more often quoted secondary residential ties such as personal property, social ties, driver's license, vehicle registered in Canada & Canadian passport, there is also: 


> Other residential ties that the Courts have considered in determining the residence status of an individual while outside Canada, and which may be taken into account by the CRA, include the retention of a Canadian mailing address, post office box, or safety deposit box, personal stationery (including business cards) showing a Canadian address, telephone listings in Canada, and local (Canadian) newspaper and magazine subscriptions.


Some pretty easy to maintain items in the list here ...




Guban said:


> ... I thought that I understood that the centre of vital interest to be where the job was before social and other relationships, and since your income basically comes from the US exclusively, would also point to being an American resident.


Then why would they worry about secondary residential ties at all?


Cheers


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## james4beach (Nov 15, 2012)

> I am assuming that your Canadian home is not rented out to somebody else at arms length. Otherwise, it would not be available to you, and would not count as your dwelling.


My Canadian home is not rented out. It's available in a heartbeat; I could go back there tomorrow and live there, which is why I consider it my permanent home.

I think you might be getting too caught up on the 'habitual abode' part. Center of vital interests lies higher in the priority list in tie-breaking. Vital interests _does not_ just mean the job. According to my accountant, my investments and storage of assets matter (including the SDB - which is only in Canada) and over 95% of my assets/investments are in Canada. I would have to earn about a decade worth of income to approach the level of assets I already hold in Canada. So in center of vital interests / economic relations, I would argue that my job is not the critical factor but rather my investments are.

So you're right, "permanent home" may not answer the question and my US apartment may be considered permanent. Then you move on to "center of vital interests" and I think that's where Canada wins out.

Again... IRS may disagree with anything, whether or not I'm on the correct side of the law.


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## Baffled (Mar 29, 2015)

@Capricorn - Yes, I am in Canada; no kids, spouse is in the US. That is the crux of our claim to his Canadian residency. 

@james4beach - your original post caught my eye because we considered doing the same approach, but Form 8833 looked daunting enough - the treaty is "gibberish" to me.
Last year, for his first year filing, we hired a firm. Cdn taxes were done as a Cdn resident; US taxes were filed using 1040. His US income is mainly from employment - there really isn't much difference between using a 1040 vs 1040NR, so the reasoning goes. Choosing to go with a 1040 in his case is the "path of least resistance" compared to a Form 8833, I suppose. I just hope that we did not inadvertently made an implied admission that he is a US tax resident by doing so, as that wasn't the intent.

@Guban - Those were exactly my thoughts when I first read his original post. I am so curious I had to ask. I am assuming in @james' case, there's probably a benefit in him going with the 8833; in our case, I believe there isn't any, but I don't know everything there is to know. :hopelessness:

@AltaRed - pardon my curiosity again...what made the IRS come after you as US tax resident, especially since you were on a TN visa?

Regardless of the approach, I suppose there is no way of getting out of the painful US reporting requirements if you meet the threshold ( i.e. 8938, 3520, FinCen, etc).


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## Baffled (Mar 29, 2015)

What is the significance of Form T1248 for a factual resident of Canada, apart from not being able to file electronically? Why does one have to indicate this fact if you are filing and paying as a Canadian tax resident anyway?


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## AltaRed (Jun 8, 2009)

Baffled said:


> @AltaRed - pardon my curiosity again...what made the IRS come after you as US tax resident, especially since you were on a TN visa?


My point is tax treaties do not stop tax authorities from trying to get to you to pay taxes in their country. They won't succeed if the tax treaty is clearly in your favour (their jurisdiction is subordinate to sovereign tax treaties) but you may need the services of a good cross-border tax accountant to justify your case. These kinds of things generally are not DIY and I was glad I did not have to deal with it.


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## james4beach (Nov 15, 2012)

For anyone interested in working in the US... my total fees paid to accountants in the last 12 months (for advice and tax filings) is *$1,700* so far.
On top of this I have spent tremendous amounts of my own time collecting the required data.

Of course, if IRS disputes any of my filings, I'll be looking at hundreds more in accountant fees to deal with that. I see these fees as more of a type of protection and assurance by a professional. IRS penalties for failure to file these things starts at $10,000 per incident. If US tax filings only cost me $2,000 in fees I will seriously consider myself lucky.


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## Doubler (Mar 23, 2017)

*How to finish Form 8833*



james4beach said:


> I think that having your spouse and kids in Canada is a big deal for indicating that Canada is one's center of vital interests.
> 
> Although I don't have kids, I would similarly argue in my case that my entire family is in Canada.


Hi james4beach,

I worked 7 months in US under TN status and returned home in Canada end of year 2016. 
I tried to write Form 8833 myself but had no idea what to fill in Line 1(b) "Article(s)", Line 2, Line 4 and Line 5.
Your advises will be much appreciated.

Thanks in advance.


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## james4beach (Nov 15, 2012)

Doubler, I'm sorry -- that form is way too complex to give some simple advice on. You have to cite portions of US tax code and what you fill in depends on your particular situation. It wouldn't be safe for me to just read off what my form says because it probably won't apply to you.


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