# Misconceptions about US vs Canadian taxes



## james4beach (Nov 15, 2012)

I've posted about this before, from my experience working on the US west coast. I file taxes in both Canada & US and am resident in both, so I can make some direct comparisons of the tax situation in both areas (I get tax credits which prevent double taxation but I still see the numbers from both sides).

Canadians continue to have this perception that US taxes are very low. They are low in some states, but in many of the states where you'd actually want to live (WA, OR, CA, MA, NY) the total taxes, the sum of federal state SS medicare, actually matches or even exceeds Canadian taxes -- particularly BC, AB, ON. On top of this, dealing with the Canadian tax system is much easier. The system works more smoothly, has less insane reporting and disclosure requirements, penalties if you make a mistake are milder, and the CRA is not aggressive like the IRS is.

My message to anyone considering fleeing to the US for tax savings is... think again! If you're in BC, AB, ON then you probably already pay similar taxes as living in the US, or at least will have a much more comfortable tax experience for more or less equivalent tax burdens.

Bloomberg: Imagine Canada as a Tax Haven for Americans



> Although some Americans think of Canada as a quasi-socialist economy thanks to its single-payer health-care system, it’s not actually a high-tax country. The top federal income tax rate in Canada is 33 percent — lower than the equivalent rate in the U.S. The provincial tax rate in Ontario, home to the business hub of Toronto, is 13.16 percent, similar to the 13.3 percent paid by Californians.


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## kcowan (Jul 1, 2010)

Thanks James. My buddies who moved there found that buying things was the major difference. Greater selection at lower prices. Here is a comparison to Vancouver vs San Jose:
https://www.expatistan.com/cost-of-living/comparison/san-jose-california/vancouver?
19% cheaper in Vancouver!
https://www.expatistan.com/cost-of-living/comparison/san-jose-california/toronto
17% cheaper in Toronto


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## fatcat (Nov 11, 2009)

james4beach said:


> I've posted about this before, from my experience working on the US west coast. I file taxes in both Canada & US and am resident in both, so I can make some direct comparisons of the tax situation in both areas (I get tax credits which prevent double taxation but I still see the numbers from both sides).
> 
> Canadians continue to have this perception that US taxes are very low. They are low in some states, but in many of the states where you'd actually want to live (WA, OR, CA, MA, NY) the total taxes, the sum of federal state SS medicare, actually matches or even exceeds Canadian taxes -- particularly BC, AB, ON. On top of this, dealing with the Canadian tax system is much easier. The system works more smoothly, has less insane reporting and disclosure requirements, penalties if you make a mistake are milder, and the CRA is not aggressive like the IRS is.
> 
> ...


this is no secret to me ... with my age deduction and principal residence deduction in bc i pay about $600 where in seattle i would pay about $3000 in property taxes ... high-tax canada is certainly a myth


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## kcowan (Jul 1, 2010)

Of course, Toronto is 124% more expensive than Puerto Vallarta, not 24% more, so PV is 100/224 or 45% of the COL in the big smoke but without the smoke.
https://www.expatistan.com/cost-of-living/comparison/puerto-vallarta/toronto?

Vancouver is 46% but without the rain.


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## m3s (Apr 3, 2010)

kcowan said:


> Thanks James. My buddies who moved there found that buying things was the major difference. Greater selection at lower prices. Here is a comparison to Vancouver vs San Jose:
> https://www.expatistan.com/cost-of-living/comparison/san-jose-california/vancouver?
> 19% cheaper in Vancouver!
> https://www.expatistan.com/cost-of-living/comparison/san-jose-california/toronto
> 17% cheaper in Toronto


Prices don't adjust as fast as the currency does. Imagine the pandemonium. Everything was much cheaper outside of Canada when CAD was worth more than USD. It dropped like 25% in 5 years

CA/OR are known to be expensive for pretty much everything.. it really varies by state and there are some sweet spots

To be fair you'd have to at least compare expensive states with expensive provinces not outlier expensive states to the cheapest provinces


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## james4beach (Nov 15, 2012)

But there is a common pattern there: most of the desirable places that actually have jobs and good quality of life are more expensive and have higher taxes. But sure, you can go to South Dakota and have a really low cost of living and really low tax burden. You _could_.


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## AltaRed (Jun 8, 2009)

Another point is that states with low income tax rates often have high VAT and/or property tax rates (some exceptions like oil producing states). They get you one way or the other.

Added: Example: Texas has high property tax rates, a 6.25% state sales tax plus cities can charge an additional 2%. https://www.salestaxinstitute.com/resources/rates


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## m3s (Apr 3, 2010)

CO is supposed to be one of the best places to live in the US right now. WA can't be that bad, it's just south of what Canadians consider to be paradise of Canada and has jobs like amazon HQ. My personal choices would probably be CO, NH, AZ, AK mostly from discussion with americans. AK in particular because they get thousands in dividends/year just for living there and don't pay much if any property or sales tax

Sales taxes are more important to me as I don't pay US income taxes. I find a state with low sales tax (all of them are like half of Canada) has more selection and offsets the weak CAD factor, plus they have bigger sales promos and discounts (+ I can stack 10-20% off pretty much everything in the US) I keep finding out about more deals I can get through work like dirt cheap software and stackable pro deals from outdoor brands.

You can't just compare msrp because Canada doesn't have the same promos, selection, tax. It's not worth it for a Canadian to covert money to USD and drive down just to shop anymore, but deals exist if you live there to get them


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## Eclectic12 (Oct 20, 2010)

m3s said:


> ... It's not worth it for a Canadian to covert money to USD and drive down just to shop anymore, but deals exist if you live there to get them


Weird ... my family did shopping trips to the US all the time when the exchange was 1.40+. My co-worker does it all the time now, when at the cottage.


Cheers


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## m3s (Apr 3, 2010)

Eclectic12 said:


> Weird ... my family did shopping trips to the US all the time when the exchange was 1.40+. My co-worker does it all the time now, when at the cottage.



I mean compared to when it was at par and people could pay the gas+hotel+customs+exchange etc and still come out ahead when Canadians were buying vehicles at USD MSRP and still coming out ahead

1.30 means everything costs like 30% more now and the MSRPs didn't really change. If you have a cottage and are going anyways and know how to get good deals and save taxes sure.. you can still come out ahead


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## lonewolf :) (Sep 13, 2016)

In the big cites taxes should be lower as cost of services are spread out to more people though the government corruption seams to be worse the bigger the city making taxes even higher. The government never looks to it as being the problem only to how it can raise taxes. How often have you herd the government say they were the problem ?


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## humongous (Sep 15, 2016)

Being dual ive considered living in the US later in life. Would not consider high tax / high cost of living states such as Cali / New York. CALI is one of the only states which actually taxes Canadian RRSP's believe it or not.


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## Eclectic12 (Oct 20, 2010)

No direct knowledge ... but it seems from links that the RRSP is not as simple as I would have thought for those moving to the US. Like others, I assumed that it would be treated like other US retirement accounts. Instead it seems to be seen as a foreign trust where income is to be reported/taxed as it is earned instead of at withdrawal. Prior to 2014, one had to file IRS form 8891 with one's U.S. return to formally claim the tax treaty benefit of deferring this tax until withdrawal. (No form is described as meaning that the US and Canadian tax happen at different times = no foreign tax credit = double taxation).

Note that the deferral applies to RRSP contributions made while one was a Canadian resident.


After 2014, the form is no longer required where the tax treaty deferral is automatically being granted. Sadly, FBAR reporting for RRSPs seems to still be required.

http://agtax.ca/canada-us-tax/irs-us-rrsp-reporting
https://www.forbes.com/sites/robert...x-break-to-canadians-hallelujah/#7dfd04330867


It seems that avoiding California is a wise idea but there is still work to do.


Cheers


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## Nononymous (Jun 10, 2015)

The issue with RRSPs is federal tax, not state tax, so it would apply anywhere in the US. As I understand it, the deferral available for RRSPs is not available for TFSAs, and if mutual funds are involved it can be a bit of a nightmare (something called PFIC).

For what it's worth, all RRSP/RESP/RDSP/TFSA etc. accounts are exempt from FATCA reporting by Canadian banks, under the terms of the IGA. So the only way the IRS learns about them is if they are reported by the taxpayer. This information may useful to Canadians who only plan to spend a few years in the US, or Canadian residents with dual citizenship who do not wish to comply with US tax filing obligations.


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## Nononymous (Jun 10, 2015)

humongous said:


> Being dual ive considered living in the US later in life. Would not consider high tax / high cost of living states such as Cali / New York. CALI is one of the only states which actually taxes Canadian RRSP's believe it or not.


As a dual citizen, surely you are already filing US tax returns every year, and declaring your RRSP on FBAR forms?

;-)


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## james4beach (Nov 15, 2012)

RRSP is nicely exempt from many US tax headaches but unfortunately the TFSA is not. If someone is a US citizen or becomes resident in the USA, for example exceeding the Substantial Presence Test due to snowbirding or business, you're going to have to shut down your TFSA. It's simply not worth keeping it open due to the mountain of paperwork and disclosures required.

The RRSP is OK, but the TFSA does not work for dual residents. You can try ignoring the problem, but since the Canadian banks report a lot to the IRS, don't push your luck for too long.

I've hit a decision point while living in the US where I'm fed up with maintaining tax filings and documentation for both US and Canadian things. Within the next few months, I'm going to have to decide whether to stay permanently in the US, or permanently in Canada. Then I will start collapsing and closing accounts and consolidating them, eliminating the footprint in the other country.


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## Nononymous (Jun 10, 2015)

james4beach said:


> The RRSP is OK, but the TFSA does not work for dual residents. You can try ignoring the problem, but since the Canadian banks report a lot to the IRS, don't push your luck for too long.


Canadian banks do not report TFSAs to the US under FATCA, per the IGA. Consequently TFSAs aren't a problem unless someone is trying to be fully compliant and report everything correctly, which may or may not be a smart thing to do, depending on the circumstances.


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## kcowan (Jul 1, 2010)

james4beach said:


> I've hit a decision point while living in the US where I'm fed up with maintaining tax filings and documentation for both US and Canadian things. Within the next few months, I'm going to have to decide whether to stay permanently in the US, or permanently in Canada. Then I will start collapsing and closing accounts and consolidating them, eliminating the footprint in the other country.


I am surprised that the dual reporting takes so much effort now that you have already been doing it yourself. Or is it just the complexity of portfolio composition that is wearing on you?


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## james4beach (Nov 15, 2012)

kcowan said:


> I am surprised that the dual reporting takes so much effort now that you have already been doing it yourself. Or is it just the complexity of portfolio composition that is wearing on you?


On the financial side it's the various restrictions and special cases I have to deal with all over the place. The tax return itself isn't a big deal, but tip toeing around all the other regulations is a lot more work than just the tax filings.

There are other important factors such as insurance and health coverage. Because I'm not a permanent US resident, citizen or green card holder I'm finding that I'm not eligible for some things (e.g. travel medical insurance), but it's also doubtful I can get them in Canada. There are various examples of this popping all over, and that concerns me.

It ultimately comes down to uncertainty about where I'm resident. The federal tax codes have it more or less sorted out, but it's not the same for other areas such as customs and immigration, state taxation and companies' interpretations. And frankly I'm tired of dealing with the US border and having to maintain a "work status".


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## kcowan (Jul 1, 2010)

On the topic of comparative taxation, here is a FP article by Golombek claiming that Canada is now even more uncompetitive with the latest changes:

Newest rates make Canada uncompetitive
Time will tell and what happens this tax season.


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## james4beach (Nov 15, 2012)

I don't think Canada is considered to be uncompetitive in the global sphere. I've heard even large US private equity firms talk about how Canada is one of the more attractive places to do business in, and eyeing companies to acquire.

Canada has some of the lowest personal and corporate taxes among highly developed nations. _This isn't a race to the bottom_... our taxes are already low in the absolute sense.

The business community tends to spin these stories to make Canadian taxes look too high as a part of their constant lobbying for lower taxes. While of course omitting other important factors such as other taxes American corps pay: healthcare and FICA.

I've been eyeing both US and Canada for my own small business and it's no contest. The healthcare costs in the USA would just kill me. Just looking at federal tax rates is an overly simplistic comparison.


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## kcowan (Jul 1, 2010)

Perhaps rather than stating an unsupported opinion, you could post a balanced article to refute Golombeck? I am sure you have found some that support your position?


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## james4beach (Nov 15, 2012)

It's my opinion, and I am reasonably familiar with taxes in both countries. I've been a small business owner and have done a reasonably thorough survey of the tax issues in both jurisdictions, at least from the perspective of an employee and small business operator.

No I don't have citations for you. However I will remind you to look at the numbers for foreign direct investment in Canada, which has remained strong despite US tax cuts. Those lobbying for tax cuts will always jump on events like these recent US developments to argue that Canada has become uncompetitive -- that's _always_ their story.

https://www.bloomberg.com/news/arti...eign-direct-investment-drops-on-energy-exodus

Foreign business investment has remained strong under Trudeau's leadership. But of course, for the countless people who want tax cuts so badly, they will naturally start fear mongering that "business will flee Canada". This is always their story, always the scary warning that there will be an exodus.


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