Canadian Revenue

[Darkchild80 0]

Hi everyone!

This is my first time posting on this forum. I am usually in K1 forum. My fiance has a interview on Nov 20. We plan on marrying early Dec (civil marriage). We are planning every aspect of our lives, including finances. I have a question about Canadian taxes. Is it possible for the Canadian revenue service to locate my fiance in the US? He has not filed taxes in two years! We were planning to file US taxes jointly but I am afraid of owing debt to Canada. I thinking to file as married separate. Any advice?

[Jersey Girl 2]

Even though a Canadian moves, Rev Can can still consider them taxable on their worldwide income. It depends on whether Rev Can deems them to have enough "ties" to Canada. This is a murky area where experts don't always agree. There's a Rev Can form that may help: IT-221R3.

I'm no expert, but suggest he sees a tax accountant before he leaves Canada. First up, make him right with Rev Can! You can probably back file for the last two years. Then, make sure he files an "exit return" for tax year 2006. Be sure to cut all financial ties, e.g., sell house, cancel credit cards, close bank accounts, return health card, etc. This is the paper trail that proves to Rev Can that he cannot be taxed anymore.

If he ever wants to go back to Canada, or have his Canada Pension Plan proceeds sent to him in the States, he'll want a tidy record of taxes and not a mess that could come back to haunt you both.

I know other people have advised you to file jointly in the U.S. so you'll get a fat exemption. But I see this as short-sighted. If they catch up with him later, you could owe back taxes, as a couple.

There was a time when Rev Can was sleepy and didn't track off-shore money or the activities of tax exiles. Those days are over. Don't mess with Rev Can. Get him to file his back taxes and leave clean.

Edited November 3, 2006 by Jersey Girl

[Kathryn41 3,205]

I agree, clean house financially when you emigrate or it will come back to haunt you.

Here is a very useful guide for 'Emigrants" (people leaving) published by the Canada Revenue Agency advising you of what to do to clean house financially when you move away from Canada.

http://www.cra-arc.gc.ca/tax/nonresidents/.../leaving-e.html

As Jersey Girl mentioned, that big tax break in the US for filing married jointly only works if your Canadian tax situation is also 'in order'. Have your fiance be pro-active - there are a number of things he can do before he actually leaves that will help him out after he leaves. Good luck.

[Reba 2]

yep, get him to a tax accountant, or at the very least, H&R Block and file back taxes! If he doesn't, this could cause him lots and lots and lots of problems.

For financial information for Canadians moving to the US, get a book called "The Border Guide". Should be available in any Canadian book store.

[Jersey Girl 2]

P.S. I thoroughly endorse the folks at Keats Connelly (Robert Keats is the author of The Border Guide). They re-filed my Canadian taxes after Serbinski (an oft-mentioned cross-border tax expert here) screwed them up.

Just so you know what all this can cost: I made below poverty line last year. Yet Serbinski's bill was about $1,000 U.S. (for Canadian and U.S. returns). And the Keats bill to amend and refile my Canadian return was over $600 U.S.

Do not be seduced by the tax savings that come from Married Filing Jointly in the U.S. It will cost a helluva a lot more to untangle his Canadian tax mess later. For now, be responsible for your own taxes only.

Edited November 4, 2006 by Jersey Girl

[cmartyn 0]

Yikes :-())

I dont want to know...

I put 5K in the bank every year to cover what will happen one day.. These tax guys don't know nuttin.

[David and Karen 0]

Hi everyone!

This is my first time posting on this forum. I am usually in K1 forum. My fiance has a interview on Nov 20. We plan on marrying early Dec (civil marriage). We are planning every aspect of our lives, including finances. I have a question about Canadian taxes. Is it possible for the Canadian revenue service to locate my fiance in the US? He has not filed taxes in two years! We were planning to file US taxes jointly but I am afraid of owing debt to Canada. I thinking to file as married separate. Any advice?

I'm curious does CRA have his current information with regards to address and telephone? I ask this because if they do...and he owes....they very well would have sent him a demand to file for those back taxes. However, if he would likely be entitled to a refund.....they don't send a notice to file. Their practice is usually to send out a demand to file even if you owe for one year and are entitled to a refund for another. Simply so they can collect the monies owed to them.

I know right now they are working with reassessments for 2003. A wave of demands to file went out recently (within the last few weeks) for 2004 & 2005. This doesn't mean he won't get one. But if they don't have his current address etc then it makes things a lil more detailed for them to track him down. But they will eventually.

Also remember, that if he owes he is also liable for penalties and interest beyond the dates his taxes were initially do to be filed and paid. Which would be May 2 2005 (2004 taxes) and May 1st 2006 (2005 taxes.) So the longer you wait the more you owe.

Something to think about.

Edited November 5, 2006 by David and Karen

[ceriserose 1]

I too suggest that he settle the account with Revenue Canada before he leaves. I agree that it could end up a big ugly monster for both of you down the road.

Be sure to cut all financial ties, e.g., sell house, cancel credit cards, close bank accounts, return health card, etc. This is the paper trail that proves to Rev Can that he cannot be taxed anymore.

The tax treaty between the US and Canada is such that you do NOT have to cut ALL financial ties to Canada for Revenue Canada to acknowledge you are a resident of the US. There are "primary" residence ties and "secondary" residence ties.

Primary residence ties include things like a spouse or minor children living in Canada or vacant real estate which a Canadian could return to at any time. Maintaining real estate in Canada that you rent out is okay and one would pay the appropriate taxes in both countries. If you have primary residence ties, then you can be taxed in both countries after moving.

Secondary residence ties are bank accounts and credit cards. Per Revenue Canada's International tax office, it is not necessary to close or cancel either - I have one of each active in Canada still and Revenue Canada sent my closing year tax refund directly into my Cdn bank account. I am considered a resident of the US by Revenue Canada and have been since July 2005; even on this message board there are many Canadians who have kept bank accounts, loans, or credit cards open in Canada while living here. Secondary residence ties must be reported to Revenue Canada (when you move, let the bank know and they are required to file that information with the government), and to any lending agencies (in some cases, like with car loans, moving cross-border changes the terms of the contract).

I suggest that he call Revenue Canada's International office for specific information on what is considered residency. He can get information without giving any identifiers (name, SIN). Their number is 1-800-267-5177.

[Jersey Girl 2]

I do not wish to go so far off topic that it's not relevant to the OP, but just to show how sticky Rev Can can get...

I'm a dual who left Canada and took up residence in the States. My Canadian bf came to NJ and we were married. He went back to Toronto to wait for his visa.

So I thought I was a non-resident for tax purposes and withdrew my RRSP at what I thought would be 25% non-resident tax. Not so fast. Having a spouse in Canada makes me a resident for tax purposes and taxable at 46%. That's what one accountant says but the other doesn't agree.

I've had to re-file my Canadian taxes and that's an expensive proposition. If Rev Can decides to tax me at 46%, it will mean tens of thousands of dollars.

Lesson learned: you can leave Canada, but still be considered a resident for tax purposes.

Edited November 5, 2006 by Jersey Girl

[Kathryn41 3,205]

Ceriserose wrote: "Secondary residence ties are bank accounts and credit cards. Per Revenue Canada's International tax office, it is not necessary to close or cancel either - I have one of each active in Canada still and Revenue Canada sent my closing year tax refund directly into my Cdn bank account. I am considered a resident of the US by Revenue Canada and have been since July 2005; even on this message board there are many Canadians who have kept bank accounts, loans, or credit cards open in Canada while living here. Secondary residence ties must be reported to Revenue Canada (when you move, let the bank know and they are required to file that information with the government), and to any lending agencies (in some cases, like with car loans, moving cross-border changes the terms of the contract)."

I am another of those non-resident Canadians (since May 2004) who maintains a bank account and a canadian credit card. I originally kept 3 but didn't renew the two when they came due. I also had my final tax rebate direct deposited into my account. I looked at my personal tax situation and decided to cash out my RRSPs before i left Canada, then declared it on my final return. Even though I had to pay the tax on them, my income was such that the tax rate was low enough due to the fact that I had no other income other than my Canadian income for the year and I was able to request a full year's credit for my deductions so I still received a rebate. (I also didn't have a large amount invested in RRSPs). My exit taxes were easy as I had few investments and no property to settle, so was able to do them myself. I had also officially notified Canada Revenue Agency of my new address and the date for which it was effective.

Jerseygirl, having a spouse still resident physically in Canada would definitely be considered a major tie to Canada so that is definitely a situation where receiving cross-border tax consulation and advice is wise.

Edited November 5, 2006 by Kathryn41

[Jersey Girl 2]

I've read everything you both wrote, and hope the issue is sufficiently complex to warn the original poster that this is serious stuff.

Jerseygirl, having a spouse still resident physically in Canada

The operative word is "still." I did not leave a spouse in Canada. I left the country as a single person, moved to the U.S., and married him months later while he was visiting NJ. That's the sticking point. It's not as if I were married and left a spouse behind to sell a house or see kids through the schoolyear.

It remains to be seen how much of my RRSP Rev can will eat on account of this issue. Meanwhile, I've been in NJ a year, and may still be considered taxable in Canada! Let this be a cautionary tale. (This calls for a Molson XXX)

[ceriserose 1]

I guess my only point when I comment on these threads is that by telling someone they have to cut those financial ties to Canada, it's not exactly the same line that Revenue Canada has given nor how many of us have lived it. There are always different factors to be weighed in individual situations.

As always, I think getting the information directly from Revenue Canada or a tax professional (or both) is always something to be encouraged. After all, none of us are the ones who will have to deal with the consequences of following the advice we give on a message board.