Got a job from US, some tax questions, please help.

[lazycell]

Hello I recently got an offer from a school in US, if I take it, it will be a very stable job and I may not come back to Canada for 10 years or even more. I have been on CRA's website studying the tax consequences about this move, even bought a book on this, but it is mostly for people who are retired and plan to move to US. Among lots of questions, I wonder:

In order to avoid filing taxes in both countries, Canadians need to become a non-resident of Canada. Can I simply file the income tax, and just label the front page, declare that from a certain date, I am no longer a resident of Canada?

I understand I will need to sever all their ties with Canada, such as selling house, closing credit cards, bank accounts etc. Has anyone heard of a so-called Exit Tax? Is it a MUST? And if I file it, do I still need to file income tax?

Any suggestions will be very appreciated!

[gedwards]

If you have income at any time during the year you leave Canada you would fill out the normal tax return. There is a part on the first page of the T1 return that allows you to put the date you ceased to be a resident in the "Information about your residency status"

Depending on your situation the "exit" tax many not really have any impact on you. The exit tax simply means that the day you cease to be a resident of Canada the CRA deems that all of your assets are sold at their fair market value (FMV) on that day. This is the case even if you do not actually sell the assets.

The result of this deemed disposition is if the FMV on the day you cease to be a resident is > the price you paid for the asset you will trigger a capital gains tax on these assets. However there are certain assets that are exempt from this deemed disposition rule. First capital gains for your principal residence is never taxable when sold so clearly this is exempt. Secondly RRSP are also exempt. There are other exeptions. If you have any stocks or bonds outside of an RRSP they ARE deemed sold and will trigger capital gains tax.

Most personal property (cars etc) are not an issue as they are usually worth less than you paid for them as they depreciate.

The fact is if you are leaving for a long time and have already decided to sell all of your possessions anyways then really the exit tax does not impact you (assuming you sell before you leave) because the actual sale of taxable assets would already trigger capital gains tax.

I am not sure what you have researched on CRAs web site but you should download document T4056 which is a guide for people leaving Canada. In additional to your tax return in the final year there may be other tax forms to complete (ie T1243 Deemed Disposition of Property by an Emigrant of Canada).

Finally it is often a misconception people have that you are required to sell your residence in Canada to sever ties. There are many different things CRA looks at to see if you have severed ties. Although owning a home is one of the key ones it is actually owning a residence that is AVAILABLE for your use (ie sitting empty) that is considered a residencial tie. If you keep a residence that you lease out on a long term basis (ie at least a year) to a third party you MAY still be considered a non-resident after looking at all of the facts (not as clear cut if you decide to lease the home to a close relative).

Either way if you ever have doubts if you have sufficiently severed ties any taxpayer can complete a form and submit it to CRA and they will give you a written judgement as to whether they think you have severed ties. This can be submitted before you leave (I think).

[gedwards]

Exit Tax? Is it a MUST? And if I file it, do I still need to file income tax?

In Canada there is no such thing as an optional tax (wouldn't that be nice) it either applies or it doesn't. Secondly as per my post above there really isn't such a thing as a seperate "exit tax". The term exit tax is simply referring to the income tax that may or may not be payable when you become non-residence. Thus exit tax and income tax are one and the same and are all handled in that final income tax return.

[lazycell]

Hi I can't say enough thank you for all the advice. I can't believe you typed so much :) I will print it out and keep for reference.

I have only worked a few years after getting out of school, therefore all of my "assets" is a very small amount of RRSP. Since I have not been working this year, I am thinking of taking the entire RRSP out and claim it as my income of 2006, which should result in little tax, if there is any. In my husband's case, since he is still working, we plan to keep his untouched and only withdraw when we are fully settled in the US. There will be 25% withholding tax from Canada, which can be claimed as foreign tax credit when when filing US tax. I guess this will at least put it in a slower tax bracket compared with this year when he still has a full-time job. Am I getting this right?

Other than this, the only major thing left for us is the house. Oh gosh, I love it and I wish to keep it, but I am really scared of the potencial trouble of being a landlord, plus all the tax consequences. I don't know how the rental income will be taxed in Canada and I am sure we need to claim it in US, is it even possilbe to break even? This might be a stupid question since nobody knows how much the rent will be. :|

Again, thank you for the sincere help!

[gedwards]

You are on the right path regarding both your RRSP and your husbands. Yes you will typically be better off to wait until you are non-resident to withdraw your husbands. However there is no obligation, or hurry, or advantage to hurrying with your husbands RRSP unless you really need the money. There are also options to reduce withholding tax to 15% is it in left in long enough to convert to a RRIP.

Being a landlord is not worth the effort especially considering you have to be a landlord long distance (what is they don't pay rent, repairs are need etc) unless you have a patient family member close to the house.

Rental income is taxed in Canada the same way as if you are renting the house now. It would require CAD tax returns to be filed and yes there are also US consequences.

You are getting into more complex areas now as you are not only dealing with complex tax laws from both countries but also need to deal with the details of the tax treaty between them. It is a good idea to have an accountant (at least for the first year of taxes after you move) to walk you through the options. You should deal with this accountant before withdrawing the RRSP as they can give you the full run down.

For a more detailed answer to your questions regarding the RRSP and moving it check out this link that has a good detailed answer to a similar question:

http://www.kerrfinancial.ca/e/ms/000901.htm

[lazycell]

We will sell the house and both leave in 2007. Seems all we need to do is to file tax return in early 2008, following all the instructions on the forms and hopefully to claim the tax amount as foreign tax credit when we file US tax return. You've really helped me to clear up this Exit tax thing.

I sort of don't worry about RRSP too much as we don't have large amount of money in it anyway. Maybe we will choose to take my husband's out next year if it would take him a while to find a job in the same city and he ends up with less income.

I thought about all the trouble and stress, now you have further convinced me of staying away from the long-distance-landlord thing, thanks for saving us! :D

[lazycell]

I have been reading this forum for over a month now, wish I had found it much earlier since I have learned so much. And the first day I post my questions, I got really helpful advice. I will for sure to check back often and hopefully contribute my humble opinions from time to time.

Nice weekend, everyone!