Author Topic: Moving from Canada -> USA tax implications  (Read 2153 times)

deathandtaxes

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Moving from Canada -> USA tax implications
« on: August 12, 2019, 07:25:31 PM »
Im a dual US/CA citizen. Currently an Ontario resident. I am self-employed sole-prop (Amazon.ca FBA). I net $95,000 CAD per year. I have no US tax liability and harvest FTC's (Foreign Tax Credits) yearly. Considering moving to Michigan and trying to grasp how my taxes will change while continuing my Canadian business (its mostly online).

How I understand it is all Canadian income will be taxed by the CRA @ 25%. I will no longer be liable for CPP/EI (Not sure if I'll be liable for Ontario income tax). As a Michigan resident Ill be liable for state income tax, self employment taxes (FICA) @ 15.3% and federal income tax. I will still be able to harvest FTC's from the Canadian tax for use against some US tax owed. Can I only offset US federal income tax? Not sure.

Doing quick n' dirty math assuming different scenarios I get these numbers:

* Ontario resident, $95,000 CAD income, total tax: $26,455 CAD (includes federal, provincial, CPP/EI premiums)
* Canadian non-resident, $95,000 CAD income, total tax: $23,750 CAD (25% withholding tax rate) and Michigan resident, $72,000 USD ($95,000 CAD) income, total US tax: $21,082 USD ($27,932 CAD) (Federal Tax: $8,020 USD, FICA: $10,173 USD, MI State tax: $2888 USD)

Assuming the above, being a Michigan resident while continuing my business in Ontario my tax liability appears to increase by ~$1500 CAD (but it gets a lot worse). My $23,750 Canadian tax liability would be FTC's, but this would only offset my US federal taxes owed ($8,020 USD) and I would still be liable for state and FICA taxes. In other words, my tax liability would be: $23,750 CAD to Canada, and $13,062 USD to the US. In summary my yearly net tax liability would be $41,059 CAD ($23,750 CAD + $13,062  USD). Plus, I would also need to get private health insurance.

If I become a Michigander, is my thinking above correct? Would appreciate some others input. Would my tax liability really increase that much? Would I still be liable for Ontario income tax? Would my FTC's offset FICA or state income tax? Is there anyway I can make this work and/or smarter ways to do this? Its sad to see my tax liability would increase from $26,455 CAD to $41,059 CAD by moving to the states.
« Last Edit: August 13, 2019, 12:00:40 PM by deathandtaxes »

deathandtaxes

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Re: Moving from Canada -> USA tax implications
« Reply #1 on: August 13, 2019, 05:45:19 PM »
Update: Talked to an accountant and looks like being a non-resident of Canada I will not be subject to Canadian income or withholding tax because my business will not have a permanent establishment (its all amazon.ca sales, inventory stored in Amazon FBA located in Canada).

Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.