移民到加拿大后的个人所得税外文文献翻译.docx

移民到加拿大后的个人所得税外文文献翻译.docx

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移民到加拿大后的个人所得税外文文献翻译

移民个人所得税外文翻译2019-2020

英文

Soyou’removingtoCanada:

ApersonalincometaxprimerforAmericanslivinginCanada

JoannaGarcia

Abstract

Asthebusinessworldcontinuestoexpandglobally,theU.S.andCanadaremaingreatalliesandtradepartners.TheCanadianmarketisanobviousavenueforexpansionofU.S.companies,providingopportunitiesforU.S.executivestofindthemselveslivingnorthoftheborder.Whileculturallyquitesimilar,therearesomesignificantdifferencesbetweenthetwocountriesofwhichpotentialU.S.expatriatesshouldbeaware.ThisarticleintroducesthereadertopersonalincometaxinCanada,highlightingsomebasicdifferencesbetweentheU.S.andCanadiantaxsystems.Italsodiscussestheimpactofthosedifferencesontaxplanning.Inaddition,itwillcoversomerequirementsofindividualswhoareconsideredtaxpayersofbothcountries.Finally,itwillbrieflydiscusssometaxandnontaxconsequencesofgivingupU.S.citizenship.

Keywords:

Taxpreparation,Foreigntax,UStaxesonforeignincome,FilingtaxesinCanada,Taxplanning

1. TaxationforAmericanslivinginCanada

Asthebusinessworldcontinuestoexpandglobally,theU.S.andCanadaremaingreatalliesandtradepartners.Canadaisourlargestgoodsexportmarketandsecondlargestsupplierofimportedgoods（USTR,n.d.）.TheCanadianmarketisanobviousavenueforexpansionofU.S.companies,providingopportunitiesforU.S.executivestofindthemselveslivingnorthoftheborder.Infact,Canadaishometoover650,000registeredU.S.voters,morethananyothercountryintheworld（Artuso,2016）.Whileculturallyquitesimilar,therearesomesignificantdifferencesbetweenthetwocountriesthatpotentialU.S.expatriatesshouldbeawareof.ThisarticlediscussessomebasicdifferencesinindividualtaxationbetweentheU.S.andCanada,andtheimpactofthosedifferencesontaxplanning.Inaddition,itwillcoversomerequirementsofindividualswhoareconsideredtaxpayersofbothcountries.Finally,itwillbrieflydiscusssometaxandnontaxconsequencesofgivingupU.S.citizenship.ThediscussionofCanadiantaxationassumesthatthetaxpayerisaresidentofCanadafortaxpurposes,notsimplyafrequentvisitor.

2. Canadiantaxcompliance

TheCanadianandU.S.taxsystemsareconceptuallyquitesimilarforindividuals.Bothuseaprogressivetaxstructurewithabroaddefinitionofincomeandspecificallydescribedadjustmentstoreducetheamountoftaxultimatelypaid.Bothhaveapay-as-you-gosysteminwhichtaxesarepaidthroughouttheyear,eitherthroughwithholdingorperiodicinstallmentpayments.TherearesomebasicdifferencesbetweenU.S.andCanadiantaxrules,includingwhoisconsideredataxpayerineachcountry.TheU.S.requiresbothcitizensandresidentstopaytaxontheirworldwideincome.Canadarequiresonlyresidentstopaytaxontheirworldwideincome.ThismeansthataCanadiancitizenwhomovestotheU.S.willlikelyonlyhavetofileintheU.S.（assumingtheyhavenoCanadian-sourcedincome）.AU.S.citizenwhomovestoCanada,ontheotherhand,willlikelyhavetofilereturnsinbothcountries.Fortunately,bothcountries’taxlawsincludeprovisionstoreducetheincidenceofdoubletaxationforindividualswithfilingrequirementsinmultiplecountries.

InCanada,individualreturnsaredueonApril30,insteadofApril15asintheU.S.Thatseemslikeaminordifference,buttherearenoextensionsinCanada.Soifyouareusedtoextendingandfilinginthefall,thiscanbeasignificantadjustment.Theonlyexceptionisifyouoryourspousecarryonabusiness（i.e.,somethingthatyoureportonScheduleCofyourU.S.1040form）,youhaveuntilJune15tofile.TheCanadianindividualtaxreturniscalledFormT1,andyouremployerreportsyourwageandwithholdinginformationonFormT4,whichisverysimilartoFormW2intheU.S.

Ifyouaremarriedand—like95%ofmarriedcouplesintheU.S.（Wood,2015）—filejointly,anothermajordifferenceyouwillseeinCanadaisthatalltaxpayersfiletheirownreturns.Thisisasimplerulewithpotentiallycompleximplicationsfortaxplanning.Separatereturnsmayprovideopportunitiestoshiftincometothelower-incomespouse.However,inCanada,thereisaconceptcalled attribution,whichdetermineswhopaysthetaxoncertaintypesofincome.Forexample,ifyoutransferincome-generatingpropertytoyourspouse（e.g.,stock,bonds,rentalproperty）,youarestillliableforthetaxonthatincomeandfuturecapitalgains.Therulesforincomearesimilarforpropertytransferredtorelativesundertheageof18,thoughcapitalgainsaretaxabletothetransferee.Therearewaystoavoidattribution,butthetransactionmustbestructuredproperlyatthetimeofthetransfer.Essentially,thetransferneedstolooklikeanarm’s-lengthtransaction.Ifyouaredealingwithyourspouse,youwillalsoneedtoelectoutofrollovertreatment,whichmeansyouwillrecognize—andpaytaxon—anyunrealizedgainsatthetimeofthetransfer.

2.1. Deductionsvs.credits

Thereisaphilosophicaldifferenceinhoweachcountryallowstaxpayerstomakeadjustmentstotheirincomeinordertoreducetheirtaxliability.TheU.S.systemprovidesforalargenumberofdeductions,includingthestandarddeductionandahostofitemizeddeductions.Onecriticismofthedeductionsystemisthat,becausethesearepretaxdeductions,itprovidesalargerbenefittohigherincometaxpayers.A$1,000deductionsaves$370intaxesforsomeoneinthehighesttaxbracket,butonly$100forsomeoneinthelowestbracket.TheCanadiansystem,ontheotherhand,usescreditstodirectlyreduceduetaxes.Creditsarederivedassomepercentageofabaseamount.Thepercentageisgenerallytheloweststatutorytaxrateandisthesameforalltaxpayers,regardlessoftheirtaxbracket.Forexample,in2018,thebaseforthebasicpersonalcredit（similartotheformerpersonalexemptionintheU.S.）was$11,809.Theloweststatutorytaxratewas15%,soeveryeligibletaxpayerreceivedacreditof$1,771.

WhileCanadausesacreditsystem,itshouldbenotedthatthenumberofavailablecreditsfallsfarshortofthenumberofdeductionsavailableintheU.S.system（thoughtaxreformintheU.S.hasreducedthenumberofdeductionsavailabletotaxpayers,aswellasincreasedtheproportionoftaxpayersthatwilllikelyclaimonlythestandarddeduction）.ThemostcommonitemizeddeductionswithnoequivalentinCanadaarethemortgageinterestdeductionandthestateincometax（orstatesalestax）deduction.InterestisonlydeductibleinCanadaifitcanbetiedtopropertythatgeneratestaxableincome（e.g.,interestonaloanusedtopurchaseinvestments）.ProvincialincometaxinallprovincesandterritoriesexceptQuebecisbasedonfederaltaxableincomeandiscalculatedaspartofthefederalreturn,withnoneedforaseparatefilingorseparatepayment.Eachprovincesetsitsowntaxbracketsandrates,rangingfromalowof4%inNunavuttoahighof25.75%inQuebecandNewBrunswick.TheprovinceswiththelargestpopulationsofU.S.citizensareBritishColumbia,Ontario,andQuebec（Artuso,2016）.InBritishColumbia,provincialtaxratesrangefrom5.06%to16.80%（TaxTips,2018a）.InOntario,provincialtaxratesrangefrom5.05%to13.16%,withadditionalsurtaxesthatcanraisetherateashighas20.53%ontaxableincomeaboveabout$89,000（TaxTips,2018b）.Quebecadministersitsownincometax,separatefromthefederalsystem,thatincludesaseparatefiling.However,thetaxsysteminQuebecusesmanyofthesamerulesasthefederalsystem.ProvincialtaxratesinQuebecrangefrom15.00%to25.75%（TaxTips,2018c）.

TherearemanycreditsinCanadathataresimilartoU.S.deductions,includingmedicalexpenses,charitablecontributions,andstudentloaninterest.TherearealsocreditsnotavailableintheU.S.,includingtuition,politicalcontributions,publictransit,andapensioncredit.Yourtaxadvisorortaxpreparationsoftwarecanhelpwiththecalculationofthesecredits.

2.2. Payrolltaxes

BothU.S.andCanadianworkersaresubjecttopayrolltaxesontheirwageincome.IntheU.S.,thismeansemployeescontributetoSocialSecurityandMedicare.In2018,theSocialSecurityratewas6.2%ofwagesupto$128,400.Medicareis1.45%onunlimitedwages,plusanadditional0.9%onwagesinexcessof$200,000.InCanada,employeespayintotheCanadaPensionPlan（CPP）andEmploymentInsurance（EI）.ForCPP（similartoSocialSecurity）,the2018ratewas4.95%ofpensionableearnings,upto$55,900,withabasicexemptionof$3,500.ForEI（similartounemploymentinsuranceintheU.S.,whichonlyemployerspayinto）,theratewas1.66%ofearningsupto$51,700.Whiletheratesbetweenthetwocountriesarefairlysimilar,thedifferencesinmaximumsmeanthatCanadianemployeesmaypaymuchlessthantheircounterpartsintheU.S.,especiallyathigherincomelevels.OnebeneficialaspectofthecloserelationshipbetweenCanadaandtheU.S.isthat,whereveryouendupretiring,youwillgetcreditforpayingintotheothercountry’sretirementsystem.SoifyoureturntotheU.S.,yourSocialSecuritybenefitsshouldnotbeaffectedbyhavingmissedafewyearsofU.S.earnings.

2.3. Salestax

Inadditiontofederalandprovincialincometaxes,thefederalgovernmentadministersasalestaxsystemcalledtheGoodsandServicesTax（GST）.Thisisessentiallyavalue-addedtax,withfinalincidencefallingontheconsumer.TheGSTrateiscurrently5%.AlloftheprovincesexceptAlbertaalsohaveaprovincialsalestax（PST）.Infiveprovinces—NovaScotia,NewBrunswick,NewfoundlandandLabrador,Ontario,andPrinceEdwardIsland—theGSTan