# Immigrant Spouse Tax Issues



## drds (Feb 7, 2010)

My wife and I have a somewhat complicated tax situation and not sure where to start when filing for 2010.

The situation is this: We were married this summer and my wife moved to Canada on 1 Sept. My wife is a US Citizen and has just received her Canadian Permanent Residence in October.

She is still working for her American employer as an employee (telecommuting from our home – she is not an independent sub-contractor… not an option with her employer).

Some things that we have been thinking about:

1 – Can/should we file jointly? I earn just over $90,000 CAD and she earns just under $60,000 USD. I have no knowledge of how married couples file. All our banking is merged as of this summer with joint accounts etc.

2 – As she works out of a home office, are there any deductions we can claim? If so, does she do this when she files her US Taxes? Or when she submits to CRA? If not then can it be claimed on my taxes?

3 – My wife is not on the mortgage as I owned the home prior to our marriage – should we put her on the mortgage? (reference question #2) Should we do that this year or wait until next or is there any advantage? 

5 – How can we tell what her tax liability will be to both the IRS and CRA? We are aware of the tax treaties but not sure at what income/deduction level we will be liable. We want to start planning now to have the money ready in case we have to pay!

4 – What are some other things to consider?

Thanks in advanced for any assistance!

Cheers
D


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## GeniusBoy27 (Jun 11, 2010)

First off, congratulations on getting married.

This is always complicated, so I'd suggest that you talk to a CA who's done cross-border work.

You need to joint file, in one country, and from your living situation, it'd be Canada.
Your wife would have to file with the IRS still and pay taxes there.

Those taxes, would then be applied to her Canadian taxes, and she'd pay any difference (or get a refund.)

Her home office can be claimed (including a proportion of heat, electricity, water, telephone bills, etc.), and a proportion of the mortgage INTEREST that corresponds to the usage of her space in the home. (i.e. 1/6 of the home, if you use 1 room out of 6). 
I don't remember being able to do this on my US taxes, but I could on my Canadian taxes. 

I'm not sure about the mortgage if it has to be shared in her name in it. I think under joint tenancy laws with marriage that it's irrelevent, but someone else may know that.

You should base her tax liability though on Canadian tax. In general, US tax is lower than Canadian, so you'll probably owe some!

However, to be honest, I'd be talking to a CA used to dealing with border tax issues, so you don't get into trouble!


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## Berubeland (Sep 6, 2009)

You'll definitely want to talk to an accountant who has experience with cross border work. 

My hubby is in the same boat except he's taking care of our son instead of paid employment (believe me it's hard work)

CRA gave us a Temporary Tax Number so he could file a spousal return with me. 

Good Luck and Congrats on the marriage


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## Four Pillars (Apr 5, 2009)

With respect to the house - you don't have to add her as an owner, however it makes things easier if you pass away. No probate fees and she will automatically become the owner.


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## MoneyGal (Apr 24, 2009)

Here is my super-quick answer to your questions:

1. There is no "joint" filing in Canada. You will each need to file a Canadian return: your wife as a Canadian resident (Canada taxes its deemed residents on worldwide income), and you on your Canadian income. 

2. She will also need to file a U.S. return. I don't know whether she would be a deemed US resident for 2010 or not, but the US taxes on income within the jurisdiction, and income earned through employment with a US company qualifies.

3. IMPORTANT! All 3 tax returns will need to be coordinated. HOWEVER, this does not mean the same person/firm needs to do all three returns. The only aspect that needs to be coordinated, really, is her US return with her Canadian return (and her Canadian return will be coordinated with your Canadian return as she is your spouse. But the ONLY thing that carries over from her Canadian return to your Canadian return is her taxable income - i.e., ONE number). 

4. Deductions against Canadian taxes can only be taken against Canadian income. If your wife has no earned income in Canada, her home office deductions will not be included anywhere on her Canadian tax return. I don't know what the rules are for home office deductions for US taxes; in any case any deductions would be from her US income and go on her US return. 

5. There is no tax deduction associated with mortgages on principal residences in Canada, so there's no TAX implication for her being on or not on the mortgage deed. HOWEVER, there are family law implications whether she is down as a co-owner or not. But that isn't what you asked about, so I am not going to provide any more info. From a tax standpoint, there's no advantage to adding her name to the title. 

6. The only way to know what your likely tax burden will be in advance is to do some pre-planning. I do know Canadian tax firms that provide US return preparation, but they are all very costly (i.e., $400 per hour and up). As an alternative, H&R Block provides US return preparation for Canadian residents at a much lower price point.


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## GeniusBoy27 (Jun 11, 2010)

I agree alot with Money Gal. I didn't mean joint filing, as much as 2 separate filings as a married couple, with those implications.

RE: Home Office. I may have myself confused, since I had both Canadian and US income, and probably filed it against Canadian income. Since her income is all US-based, it would make sense to file home office deductions against US income, if that's possible. Where there is an advantage would be mortgage interest deductibility as a portion of home office expenses; however, that would be tempered by the loss of capital gains exemption upon sale of your home.


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## MoneyGal (Apr 24, 2009)

If you can genuinely claim the mortgage interest deduction (i.e. you are among the classes of workers entitled to claim mortgage interest costs), you do NOT put your future capital gains exemption at risk by doing so. Interest is a *useage* cost, not a *capital* cost. 

See this thread: http://www.canadianmoneyforum.com/showthread.php?t=4066&highlight=capital+gains+exemption


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## ghostryder (Apr 5, 2009)

GeniusBoy27 said:


> and a proportion of the mortgage INTEREST that corresponds to the usage of her space in the home. (i.e. 1/6 of the home, if you use 1 room out of 6).



This is incorrect. Employees CANNOT expense mortgage interest as part of their "work space in the home" expenses

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/cmmssn/hm-eng.html



> you cannot deduct mortgage interest or capital cost allowance.


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## Karen (Jul 24, 2010)

I was married for four years to an American (until his death from pancreatic cancer last year). I sponsored him for permanant resident status in Canada, which took about a year and a half to come through. His income at first was all American (pension and annuity income), but he had to file both Canadian and American income tax returns from the day he moved to Canada.

I can't stress enough how essential I think it is for anyone in this position to use a single tax preparer who is an expert in preparing US/Canada tax returns. I certainly acknowledge MoneyGal's vastly superior knowledge than mine about financial matters, but I have to disagree with her in this one matter. She's right, theoretically, that it doesn't have to be the same person who prepares the IRS and the CRA returns, but in practical terms it can cause serious problems if you don't.

For one thing, we discovered that there are very few accountants in Canada or the U.S.) who are truly capable of doing these returns accurately. The problem is that many accountants genuinely believe they are, assuring the client that they can do the job and then making serious errors, leaving the client fully responsible. Bill and I met several people who had experienced these problems at a social group we attended for Canadian/American couples.

One of the problems is that, although in Bill's first year here his tax filing was relatively simple (his tax accountant prepared both tax returns and then claimed a foreign tax credit on his Canadian return for the amount he had paid to the IRS.) But in the following years, he had Canadian interest income to declare which complicated matters. In those years, his Canadian return claimed a foreign tax credit for what he had paid to the IRS, and his US return claimed a foreign tax credit for the amount of tax he'd paid on his Canadian interest. If two different accountants had prepared the two returns, it would have been very easy to miss one or both of these credits.

Bill's tax preparer has software that takes all this into account, not something that the average accountant would have.

Then, of course, all Canadian dollar amounts have to be converted to US dollars on the IRS return and all US dollars to Canadian funds on the CRA return. 

MoneyGal is right in saying that it is expensive to have a specialist do this work, but, in our experience, it was money well spent. We used a man named David Ingram (remember him? - he used to be extremely well known in Canada and the US; he's now semi-retired and works out of his home in North Vancouver).

David kept us out of trouble in another way, too, by informing us of the requirement for Americans to file annual TD F 90-22.1 forms (_Report of Foreign Bank and Financial Accounts_) with the U.S. Department of Treasury if their total assets held in foreign financial institutions total more than $10,000. The penalties for not filing this form every year are extremely severe - a minimum fine of $10,000 per account up to $100,000 per account and a possible five years in prison. The US government announced about three years ago that they were going to be enforcing this requirement very strictly, and we wouldn't even have known about it if David hadn't informed us of it.

There are other reports that have to be filed in the US if the American citizen has any interest in Canadian RRSPs or RIFs. This didn't affect us as Bill had never worked here so didn't have any retirement accounts here.

(By the way, Canada also has a requirement to report any foreign bank accounts, but it applies only when the accounts total more than $100,000, considerably less onerous than than the US limit of only $10,000.)

I know I mentioned a book we found helpful in another thread, but I'm going to repeat it here. It's called _The American in Canada: Real-Life Tax and Financial Insights into Moving to and Living in Canada_ by Brian D. Wruk and Terry F. Ritchie. I don't know if it's available in bookstores - I ordered mine from Amazon.Ca.


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## MoneyGal (Apr 24, 2009)

David Ingram is an amazing, amazing man who makes a tremendous amount of useful information available on his website for free. I think he's up to $450 for 15 minutes at this point though.


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## Karen (Jul 24, 2010)

He is truly amazing, isn't he - I cannot believe how knowledgable he is! He is expensive, but it's not as bad as you thought. He is currently quoting $450 per "professional hour." I paid $640 last Spring to have him prepare Bill's final two tax returns (U.S. and Canadian). As I said before, I considered that money very well spent.

When Bill and I were looking for someone to do his tax returns when he first moved down here, we spoke to a woman at one of the big accounting firms; she told us it would cost between $1500 and $1700 a year to do the tax returns, depending on how complex they were. Before we went to see her, someone told us that David was still practicing so we went to him instead - and, in comparison with the other quote we'd had, we thought his prices were very reasonable!


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## humble_pie (Jun 7, 2009)

imho $640 for those 3 tax returns is stupendously reasonable. Perhaps, karen, since he is retired and has developed proprietary software, you could persuade him to recruit a few partners/franchisees across canada. Ability to deliver a high-quality service such as you're describing is a canadian hallmark, it should be preserved & propagated somehow i think.

i had a neighbour - he's no longer alive - whose practice as a lawyer was focused upon american wives married to rich canadians. I was never sure whether it included american wives who were rich in their own right. Or american husbands married to canadian women ...


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## brad (May 22, 2009)

drds said:


> 2 – As she works out of a home office, are there any deductions we can claim? If so, does she do this when she files her US Taxes? Or when she submits to CRA? If not then can it be claimed on my taxes?


My situation is similar to your wife's: I'm a US citizen (actually dual Canadian-US) who moved here from the US to live with my girlfriend, and I continue to work for my US-based employer from my home. 

I tried deducting my home office expenses from my Canadian income taxes the first full year after I moved here, but the deductions were disallowed during a subsequent audit. The reason they gave for disallowing is that my employer did not require me to move here; I moved here on my own volition and took my existing job with me. This sounds like the same situation your wife is in, so you should talk with an accountant who is familiar with the rules of home office deductions.

I no longer try to get deductions for home office expenses; it's not worth the hassle for the small amount I'd get back if it were allowed. I do get reimbursed from my employer for office expenses, including my Internet access, printer cartridges, paper, etc. The costs of electricity, heating, etc. for my office are minimal and not worth the effort to try to recover through a deduction.


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## Karen (Jul 24, 2010)

humble_pie said:


> imho $640 for those 3 tax returns is stupendously reasonable. Perhaps, karen, since he is retired and has developed proprietary software, you could persuade him to recruit a few partners/franchisees across canada. Ability to deliver a high-quality service such as you're describing is a canadian hallmark, it should be preserved & propagated somehow i think...


The $640 was for Bill's two tax returns (U.S. and Canadian); I always did my own and took it along when when we met with David to have Bill's done. I agree with you, though, that the price was very reasonable, considering David's level of expertise.

With respect to your suggestion about persuading David to develop partners across Canada, that's exactly what he used to do. He had offices in many, many provinces and states in Canada and the U.S. until at some stage he went through a $10,000,000 bankruptcy. I didn't know him then, but he speaks of it quite openly, and I assume that's when he closed his offices and began working from his home. He has several people working out of his home office, including two of his sons. I used the term "semi-retired" because he closed all his offices, but that may not be accurate as he seems to work full-time.

As for his software, I have no idea whether he developed it himself or not; I just know that it's unique - it uses two monitors at the same time, one displaying the Canadian return; the other the US return.

At any rate, I feel that we were very lucky to find him and would recommend him highly. He's very knowledgable about both income tax and immigration matters.


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