Author Topic: Multiple income streams in multiple countries... what about the tax man?  (Read 2922 times)

TravelJunkyQC

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I have a query to run past the wise folks here, here it goes:

I have dual citizenship (US and Canada), and was born and raised in the US, but moved to Canada for university in 2004. I currently live and work in a soul-sucking office in Canada, though in the hopes of increasing my happiness, advancing my FI plans and generally kicking as much ass as possible, I've started freelancing as well. While my old freelancing used to be purely word of mouth and therefore, paid locally in CAD, my work has recently taken off a bit and most will now be paid in USD into my US bank account (UpWork.com and other US sources).

I already fill out a tax return in both countries, although I don't make enough *yet* to have to actually pay in both - my Canadian taxes currently cancel out the US taxes I would have to pay.

My question is: do any of you have any sources that would be helpful for me in terms of doing my tax returns next year? If my supplemental income is made in the US and I never actually touch it for my living expenses here, can I still deduct certain expenses (home office, etc) on my Canadian tax return? I suppose I'll have to pay self-employment tax for my freelance income? I already max out my RRSP and TFSA here with my regular income (and will most likely be opening a taxable account next year for the surplus). I have an IRA and taxable investment account in the states as well. The Canadian government doesn't yet know about those (they are quite minimal) - if I contribute to them more regularly from the supplemental income... how will that work?

You may not have the answers, but any sources I could look at would be helpful. Current google searches aren't really helping, although maybe I don't have my wording optimized.

Basically, I'm riding two horses with one ass at the moment, and my ass isn't big enough!

daverobev

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #1 on: October 02, 2015, 01:21:25 PM »
You "make" your money where you are. So the money you earn in the US.. you're not actually IN the US.

You declare worldwide income to Canada as you are resident in Canada. Unless you spend a significant amount of time on it a week, I wouldn't even bother with home-business-use stuff. It is based on the number of hours a week... so if you do 10 hours a week, you're looking at what, 6% of your gas bill etc, and not paying the 30% tax - so in effect 2% reduction. Your call.

So you need to file a self-employed form with the CRA at tax time. Should be straightforward.. unfortunately as you're in QC you can't use SimpleTax, but I'm sure TurboTax or whatever will work just fine.

If you have more than $100k in foreign assets you need to tell the CRA that too.

You probably should not use a TFSA.. search for PFIC I think the term is. You're likely safest just holding US ETFs.

You absolutely have to tell the CRA about your US unreg accounts! No idea about the IRA, but chances are it'll be under a double taxation agreement and hence exempt. No doubt one of the CPAs or our resident pedant, Cathy, will be along to poke holes and give you a much clearer opinion.

john c

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #2 on: October 03, 2015, 03:16:13 AM »
The above is bad advice.  Unlike Canada , the US has a otax system.  Canada has a territorial system.  You are correct to file two tax returns, one US and one Canadian.  If you move back to the US, you'll only have to file one, a US return.  Many US expats are renouncing their US citizenship over global taxation and onerous financial reporting regulations, like FBAR. 

I also disagree with the advice about home office expense.  Obviously, it may different in Canada, but in the US the home office deduction is based on the area of your home that is exclusively used for business.  Though the dollar amounts may be low, it is offsetting taxes.  The US also has a simplified method, which allows $5 per square foot of home office per year.  This might be $500 per year, but that $500 is otherwise heavily taxed, especially if you have other income that is cranking up your tax bracket.

daverobev

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #3 on: October 04, 2015, 07:10:26 AM »
The above is bad advice.  Unlike Canada , the US has a otax system.  Canada has a territorial system.  You are correct to file two tax returns, one US and one Canadian.  If you move back to the US, you'll only have to file one, a US return.  Many US expats are renouncing their US citizenship over global taxation and onerous financial reporting regulations, like FBAR. 

I also disagree with the advice about home office expense.  Obviously, it may different in Canada, but in the US the home office deduction is based on the area of your home that is exclusively used for business.  Though the dollar amounts may be low, it is offsetting taxes.  The US also has a simplified method, which allows $5 per square foot of home office per year.  This might be $500 per year, but that $500 is otherwise heavily taxed, especially if you have other income that is cranking up your tax bracket.

I was speaking about the Canadian side, mostly. The CRA absolutely wants to know about self employed income. The point is not where the money comes from, but where you were resident when you earned the money. OP is Cdn resi, ergo has to declare to CRA. CRA home use as business is not as generous, it is as I stated. For the US side I have no idea, except yes they will have to declare all income there as well.

TravelJunkyQC

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #4 on: October 05, 2015, 06:59:55 AM »
So if I'm understanding correctly, I'll basically keep plugging along as I've been doing - there is no easier process other than the complicated tax return I'm currently having to do (self-employed a certain percentage, employed another percentage).

You absolutely have to tell the CRA about your US unreg accounts! No idea about the IRA, but chances are it'll be under a double taxation agreement and hence exempt.
I'll have the check if there is still money in them (they were opened in my name by my parents years ago, and mostly liquidated to pay for my Uni - I doubt there is more than a few hundred in them).

You probably should not use a TFSA.. search for PFIC I think the term is. You're likely safest just holding US ETFs.
What's the problem with using TFSAs? I read up a bit on PFICs, and I'm not really seeing the disadvantage of maxing my TFSAs and RRSPs.

Canada has a territorial system.  You are correct to file two tax returns, one US and one Canadian.  If you move back to the US, you'll only have to file one, a US return.  Many US expats are renouncing their US citizenship over global taxation and onerous financial reporting regulations, like FBAR. 

I also disagree with the advice about home office expense.  Obviously, it may different in Canada, but in the US the home office deduction is based on the area of your home that is exclusively used for business.  Though the dollar amounts may be low, it is offsetting taxes.  The US also has a simplified method, which allows $5 per square foot of home office per year.  This might be $500 per year, but that $500 is otherwise heavily taxed, especially if you have other income that is cranking up your tax bracket.

I know how annoying it is with the global taxation, but since I am neither sure whether I want to return to the US in the future, nor do I make a high enough salary to have to actually pay taxes in both countries, currently, it doesn't bother me enough to take any drastic measures.

Thanks for the feedback, both of you!

Retire-Canada

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #5 on: October 05, 2015, 07:08:18 AM »
, can I still deduct certain expenses (home office, etc) on my Canadian tax return? I suppose I'll have to pay self-employment tax for my freelance income?

Yes and yes.

You home office expenses are not based on the number of hours a week you spend on the side-gig as was stated above.

It's based on:

1. area of home office vs. rest of house/apartment + plus any dedicated business services say a mobilephone + a highspeed internet connection

2. that you have a viable side-gig

#1 is easy to calculate and #2 really comes down to you making more in the side-gig than you are claiming as expenses.

In theory the home office should be 100% dedicated business space.

daverobev

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #6 on: October 05, 2015, 05:24:23 PM »
So if I'm understanding correctly, I'll basically keep plugging along as I've been doing - there is no easier process other than the complicated tax return I'm currently having to do (self-employed a certain percentage, employed another percentage).

You absolutely have to tell the CRA about your US unreg accounts! No idea about the IRA, but chances are it'll be under a double taxation agreement and hence exempt.
I'll have the check if there is still money in them (they were opened in my name by my parents years ago, and mostly liquidated to pay for my Uni - I doubt there is more than a few hundred in them).

You probably should not use a TFSA.. search for PFIC I think the term is. You're likely safest just holding US ETFs.
What's the problem with using TFSAs? I read up a bit on PFICs, and I'm not really seeing the disadvantage of maxing my TFSAs and RRSPs.

Canada has a territorial system.  You are correct to file two tax returns, one US and one Canadian.  If you move back to the US, you'll only have to file one, a US return.  Many US expats are renouncing their US citizenship over global taxation and onerous financial reporting regulations, like FBAR. 

I also disagree with the advice about home office expense.  Obviously, it may different in Canada, but in the US the home office deduction is based on the area of your home that is exclusively used for business.  Though the dollar amounts may be low, it is offsetting taxes.  The US also has a simplified method, which allows $5 per square foot of home office per year.  This might be $500 per year, but that $500 is otherwise heavily taxed, especially if you have other income that is cranking up your tax bracket.

I know how annoying it is with the global taxation, but since I am neither sure whether I want to return to the US in the future, nor do I make a high enough salary to have to actually pay taxes in both countries, currently, it doesn't bother me enough to take any drastic measures.

Thanks for the feedback, both of you!

You have to *declare* in both countries, even though you may only *pay* in one and claim the amount as an offset due to the double taxation agreement. The US' system is ridiculous but what can you do.

The thing with anything non-US domiciled is that the US taxes is harshly, and you'll pay tax to the US on stuff inside the TFSA. I am NOT an expert, neither am I American, but various places I've read - including here - say the waters are murky with the TFSA for US Citizens. RRSP you're fine as there is a bilateral agreement on retirement accounts, which the TFSA is not.

Cathy

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Re: Multiple income streams in multiple countries... what about the tax man?
« Reply #7 on: October 05, 2015, 06:20:48 PM »
Canada has a territorial system.

This is not accurate. Residents of Canada, within the meaning of the Income Tax Act, RSC 1985, c 1 (5th Supp) ("ITA"), are required to pay Canadian income tax on worldwide income, including income from sources both "inside or outside Canada". ITA § 3(a). For residents of Canada, there are generally no territorial restrictions on what is taxed by Canada. This also applies to the income tax laws of most or all provinces. For example, in Alberta, taxable income for provincial tax purposes includes, for residents, total worldwide income. Alberta Personal Income Tax Act, RSA 2000, c A-30, § 5. There are countries that have territorial tax systems (i.e. where the taxability of income is determined solely based on the source of that income), but Canada is not one of those countries.


I express no view on anything contained in the OP or in any of the replies. There are so many potential things to comment on, and the specific questions posed are so vague, that it would take an excessive period of time to write a reasonable response to the OP.
« Last Edit: October 05, 2015, 06:30:31 PM by Cathy »