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Paying taxes in two countries- Canada and US?
Old 10-12-2007, 05:35 AM   #1
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Paying taxes in two countries- Canada and US?

Hi all-
I might have a chance to become a Permanent Resident of Canada in my retirement. As an American living in Canada and as a Canadian PR, I will be drawing from my own personal retirement plan based in the US. What are my tax obligations? Would I be required to pay both US taxes and Canadian taxes? What taxes would I pay? Before I commit this, I need to know the answers to this question.

In addition, can I be a Permanent Resident in Canda and still live on Social Security from the States without being penalized?

Thanks, guys, in advance for answers to these questions.

Rob
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Old 10-12-2007, 08:48 AM   #2
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Rob, I don't know the answers to all your specific questions, but the US and Canada have tax treaties which means you will not be doubly taxed. More information is available here.....

Individuals - International and Non-resident Taxes

but I do suggest you consult with an accountant who specializes in cross border taxation. My understanding from previous threads is that you may have to continue to file a US return no matter where you live, so you might have two tax returns.

Many years ago I moved from the US to Canada. That year I had two tax returns. After concluding that I owed a lot of tax, I sought the help of an informed accountant. I ended up with a refund!
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Old 10-12-2007, 09:08 AM   #3
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Hi Rob.

Yes, you will have to file TWO income tax returns. We live in Canada but my husband is American with permanent residency in Canada. He doesn't have to pay double tax but he does have to declare his Canadian income and investments on the U.S. return as "worldwide income". We have an accountant that specializes in cross-border taxation.

It really is a pain in the a** dealing with the IRS. The accountant has told us that as long as hubby is an American citizen, they have their hooks in him and he is required to file dual income tax returns. The only way to get out of it is to renounce his U.S. citizenship.
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Old 10-12-2007, 12:34 PM   #4
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The only way to get out of it is to renounce his U.S. citizenship.
From what I've read even that doesn't really work all that well. If you have any money or income in the last few years you're deemed to have renounced your citizenship for financial reasons and you're on the hook for 10 more years even as a noncitizen.

Anybody heard of taxation without representation?
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Old 10-13-2007, 12:45 AM   #5
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Can't speak to the Canadian tax laws.

However, as to US tax laws, sadly it is true, US citizens must pay US income tax on their worldwide income, and must file US tax return no matter where they live.

I am a retired CPA. I suggest you find a knowledgable tax advisor "near the border" who deals with many clients who are US citizens residing in Canada. He can help you minimize the total 2-country tax load, and help you avail yourself of any credits or exclusions related to dual taxation.
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Old 10-13-2007, 12:48 AM   #6
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As to your question on SS benefits and status as a Canadian PR, I suggest you go to the SS website FAQ's. I am sure I have seen questions and answers there on the subject of US citizens residing abroad. If not, you can sub,it a question at the SS site.
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Old 10-13-2007, 08:54 PM   #7
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Hi, Rob,

I am a Yankee working in Calgary. I am considering a PR myself.

I think it works this way (but by all means get professional advice):

If all you have is retirement income (no wages), it should be easy--much easier than my situation.

You will be a Canadian for tax purposes. You must pay Canadian taxes on your world income from your retirement accounts. If they are from the US, you will get your W-2 by the end of January, so you pay your Canadian taxes before most Canucks, as their equivalent comes out later. (I work here so I have to wait for my forms and have to file for an extension from the IRS--automatically granted since I live outside the country.)

Then you must file with the IRS. In general, you pay more taxes in Canada than the US, so you get credit for them from Uncle and probably won't have to pay him anything.

I have been told that Roth IRAs are not recognized by Canada as a tax-protected vehicle. You will be taxed on their annual earnings even if you haven't pulled them out.

If you have a bank account in Canada (good idea, I think; I like TD Canada Trust), you must file a special form with Uncle. It is said that the IRS is very touchy about this, so do not neglect it.

If you work up here or come up here as an investor, it gets a LOT more complicated. Another story.

Canada has not issued retirement visas for a long time, and you did not say you were planning to work first just to get into the country, so I assume you have another way in (spouse?).

Cheers,

Ed in Cowtown, AB
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Old 10-14-2007, 08:47 AM   #8
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I have been told that Roth IRAs are not recognized by Canada as a tax-protected vehicle. You will be taxed on their annual earnings even if you haven't pulled them out.
Sadly, this one is true I haven't been eligible to contribute to my Roth recently, but when I am, I may just not fund it since I'm planning on retiring to Canada as well.

Also, the exemption for paying taxes in the US since you've already paid them in Canada only works up to 80k, if I recall correctly. So if your 4% withdrawal is over that, be prepared to have fun.
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Old 10-14-2007, 09:55 AM   #9
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NP, that $80k is earned income. I don't think investment income qualifies.
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Old 10-14-2007, 09:57 AM   #10
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and the $80k applies whether or not you pay taxes in another country. Certain overseas assignments have very little tax pain and still we get the $80k exemption.

Some days I would just as soon be back working in the Land of the Rich and the Home of the Slave. I know the rules back home.
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