Filling Out 1040NR

This is an example of how I filled out my 1040NR. There isn’t software for non-students so this should help you start. If you want to double check if 1040 is better (Married, Student, No/Low Canadian Income) use Turbotax Online. This should be very robotic, line by line so if you want a fuller perspective check First Year Tax Return, also if you haven’t done so yet make sure you’ve ran through the Leaving Canada Checklist to make taxlife easier in the future.

To get forms just search for their number for example HSAs is “8889”.

For every form there is a corresponding instruction PDF. For example I want to learn what goes in form 8889 I search “instructions 8889”.

For this example I assume you are:

  • Single (This is where 1040NR usually has an advantage of 1040 excepting married/student/low Cdn Income)
  • Canadian non-resident (so no need for foreign tax credit because you wont be paying Canadian tax on US income)
  • Non-resident who moved in last year and don’t meet SPT and Green Card Test (requirement for 1040NR)
  • Not a student (Avoiding education fields)
  • Are employed (Avoiding Self employment fields)
  • Have no investments (Avoiding Schedule NEC)
  • Income under $51,900 (Avoiding AMT)

U.S. Nonresident Alien Income Tax Return 2013

Basic Info

Straightforward Info: Address, SSN, Individual

Filing Status

Canadian Single

Exemptions

Your dependants if they are not claiming themselves: such as  spouse, children, parents
Each one reduces your income by $3900 on Line 40 Exemptions

Income Effectively Connected With U.S. Trade/ Business

If you don’t do business in the US this is simple. If you’re a student there is scholarship income. If you tax treaty permits you can exempt more income on Line 22 Exempt Income

Line 8 Wages:  Stick the sum of all amounts in box 1 for of all your W-2 Forms here

Line 23 Gross Income: Your total US income, which is a sum of this section

Adjusted Gross Income

Adjustments to income, these reduce your income

Line 25 Health Savings account: Stick how much you contributed for HSA or how much you will plus your employer’s contribution. Filled out with result form 8889

Line 26 Moving expensesSince you moved here last year, stick your travel, storage, shipping and temporary living arrangement expenses. Filled out with result from form 3903

Line 35 Total Income Adjustments: Sum up this section

Line 36 Adjusted Gross IncomeThis is the total income after adjustments

Tax and Credits

Here is where we apply itemized deductions, exemptions then find the taxable income and apply tax and credit tax already paid.

Line 37 Adjusted Gross Income: This is the total income after adjustments, same as 36

Line 38 Itemized DeductionsFill out schedule A

Line 39 Income After Itemized Deductions: Total subtract itemized deductions

Line 40 Exemptions: Multiply your dependants in the first section by $3900

Line 41 Taxable IncomeTake Line 39 and take out the exemptions for your taxable income.

Line 42 TaxLook at the instructions for 1040NR find the tax table look up the amount and put it here.

Line 44 Tax + AMT: Will not apply from assumptions above so just tax

Line 51 CreditsApply tax credits to reduce tax, sum it here

Line 52 Total Up Taxes – Credits

Line 60 Total Up Taxes – Credits + Other Taxes

Payments

Calculate the tax you already paid

Line 61 Taxes withheld with W-2:  Stick the sum of all amounts in box 2 for of all your W-2 Forms here

Line 69 Total Tax: Sum up all the taxes you already paid

Refund

Calculate your tax refund or payment

Line 70 Total Refund: If you paid more taxes than you owe calculate the refund here

LIne 71 Direct Deposit: Put in direct deposit information

Sign Here

Put your John Doe and your occupation

Schedule OI

Fill in your immigration and treaty income tax exmptions

Optimizing Your Finances: Investment

When it comes to money there are better places to put it than others. When it comes to spend, save and invest, it is the investing that generates the best returns over the long term but also the one that comes with the most bewildering array of choice. From stock markets to credit card debt here is an array I’ve compiled from research this should resemble the financial ladder from Ramit Sethi’s called “I will teach you to be rich”. Here’s a modified version of the “Financial ladder” from that book. Note most of this is tailored for young new grads.

The Ladder of Return:

1. Max out your employer 401k match
(50%+ rate of return) for most companies that will be 6% of our salary we get a 3% match on contributions

2. Pay off all high interest debt
(8-40% less interest) usually credit cards, payday loans etc

3. Employee Stock Purchase Plans [Has Risk]. If you can buy stock of your own company at a discounted rate and sell to pocket the difference this may be worthwhile if the discount is high enough. Avoid holding any company stock long term is you will end up very undiversified. Also any jolts to the stock price between buying and selling may leave you at a disadvantage that you might still have to pay full ordinary income on.

4. If you have a High Deductible Health Plan. Max out your HSA, Pretax contribution
Gains and withdrawals are tax free (if on medical expenses). This is a triple tax advantage.
2014 limit is $2300
– Pay out of pocket, because your receipts can be used to withdraw money tax free from the TFSA at any time in the future after it has grown 1

5. Max out Roth IRA, Roth allows tax free withdrawals of gains at age 59 1/2 and principal at any time. Investments will not be taxable because the tax is paid beforehand
Both 2013 and 2014 limit is $5500
– You still have until April tax time this year to contribute to 2013.
– Careful if you make too much money as there’s a phaseout on income (2013 Single is $112,000) on this amoun. If this is the case you may have to do a backdoor Roth (Consult a tax advisor)

6. Max out your 401k, Same as Roth IRA but there’s penalties for early withdrawals
2014 limit is $17500
– Pretax vs Roth 401k contributions see below

7. Post-Tax 401k. Although you aren’t exempt from tax on the gains your gains are deferred. A further bonus is this can be rolled over to a Roth 401K for extra Roth contributions.

8. Taxable investments (Optional). Taxable investments have the benefit if you screw up and take a capital loss you can use it to offset capital gains in the future. Capital gains tax rates are more generous at 0%, 15% and 20% almost half of your regular tax rate, so income from investment is taxed far less (why it’s good to be rich). If you have to due speculating it’s best to do it here to avoid jeopardizing your retirement funds.

Investment Accounts

401k vs IRA

Before we go into all the array of retirement tax schemes let’s get into the fundamentals of what a 401k is and what an IRA is. A 401k is a company based retirement account, you can only choose your employers funds in a 401k so be careful as some might be expensive funds with MERs north of 0.50%. When you leave the company you can roll your funds into an IRA. An IRA is an Individual account that allows you the same flexibility as a taxable account in that you can buy your own stocks, bonds, ETFs and what not except it’s tax advantaged.

HSA

HSA is the best of Pre-Tax and Roth and more. It’s even better than pretax because if it’s made through payroll deduction in a cafeteria plan it counts as an employer contribution not yours, so it’s not gross income and not subject to FICA (Social Security + Medicare). It’s also like Roth if you use it for medical expenses, provided you have receipts the withdrawals on gains and contributions is not taxable.

Pretax, Roth & Post Tax (Retirement Accounts)

In general older folks like Pretax, younger folks like Roth but this is not a hardset rule and it really depends if you like paying your tax now or in the future. The best formula for Roth vs Pretax is if the tax rate is higher and you pay more taxes in the future Roth will be better if the tax rate is lower and you will pay less tax pretax is better. The problem is no one has a crystal ball to tell you when or if that will happen and it all comes down to preference.

Pre-Tax

Pretax gives you an advantage by deferring income tax you’d pay today say 28% and then let the gains compound without paying taxes until withdrawal. Ideally assuming nothing changed with taxes when you withdraw you can do so at 10% when you’re not having other income and say wow I saved 18% on taxes and had some gains.

The three advantages I see are:
1.) It eats less of your paycheck since it takes out pretax
2.) You’re sharing the risk with Uncle Sam (ie if you can take money that would normally have been taxed and lose it, the lost portion can’t be taxed).
3.) When your old and don’t work you’ll have less income so you’ll be at a lower tax bracket when withdrawals occur (imagine pretax avoiding 28% and withdrawing at 10%)
Note, 3 has a diminishing return if you over save but that’s very rare as if you’re maxing everything out. Some like to say having too much gains resulting in a high tax bracket is a good problem to have and feel more secure with pretax as a hedge against being poor in old age.

http://thefinancebuff.com/case-against-roth-401k.html

Roth

Roth is  loved by the young for two reasons, the compound gains and higher income in the future. The first is if you have 40 years to compound your gains that’s plenty of profit that would have went to taxes. The second is if you’re young you’re in an entry level job and in the future you will be in a higher paying job; in that case it makes sense to use Roth now and Pre-tax then.

Should taxes ever increase everything coming out is tax free. Even if something bad happened to you even the inheritance could be tax free in certain circumstances. The best part for young people is all your compound gains are tax free, imagine money invested at 8% compounded for 40 years tax free!

With Roth

1.) Gains especially compound gains can grow tax free
2.)Principal and gain can be be withdrawn after age 59 and a half with no tax
3.) Principal can be withdrawn without penalty (except subject to 5 year and separation rules for 401ks)

http://www.plansponsor.com/MagazineArticle.aspx?Id=6442460166

Post-tax

Post tax is probably an undesirable place to put your money. It’s like pretax except you get no pretax advantage, only the deferred income growth. Only your principal is tax free.

Taxable

The reason to support taxable is that stock market investing is beneficial. Capital gains and dividends if held long term are subject to favourable taxation, usually around half of the regular income tax rate.  Any losses incurred can also be used to offset gains so your mistakes can get some sympathy tax-wise. Gains are only taxed when realized which is on selling, so if a company reinvests it’s income and shares go up it is like an external compounding. If you buy certain government bonds the interest may also be tax exempt.

Here’s a nice chart of tax situations for each account

Account Type
Tax on Contributions
Tax on Gains
Tax on Withdrawals
HSA
No
No
No if medical
401k, Traditional IRA
No except FICA
Yes (Deferred)
Yes
Roth 401k, Roth IRA
Yes
No
No
Post-Tax IRA
Yes
Yes (Deferred)
No on principal
Taxable
Yes
Yes (Realized)
@Capital Gains Rate
No on principal

Last Word

Diversify, unless you can predict the future or are in a situation you know won’t happen again there’s no clear cut winner in Pre-tax Vs Roth.

Pay off student loans/mortgage vs Invest

As long as you’ve paid off your high interest debt you’re free to choose paying off loans or invest. It’s safer to pay off loans but investing will more likely provide greater returns. If you haven’t seen this many times yet here it is: Over the past century the US stock market has returned annualized 8% returns
Personally if the interest rate was 6-8% I’d still pay it off because paying it off has no risk but the stock market does but when we get into 3-6% it really depends on your appetite for risk.

Buy Vs Rent

Real estate can be like picking stocks, some places do well some don’t and there are cycles. Generally I find most financial bloggers advise against real estate as an investment while most folks always cite:
1. Building Equity
2. Appreciation

Personally I’m with the bloggers, though I do own a house I rent out and it’s net negative rent out because the mortgage is so big the interest payments just dwarf anything you can make renting it out. To make it worse renting out you lose all the principal residence tax benefits (no mortgage interest deduction!!), not to mention your equity payments to mortgage will not deductible regardless of whether you rent out or not. So that leaves only appreciation.

With regards to appreciation on average the housing market has only appreciated at the rate of inflation so you’ve got to be skilled at picking houses and in addition property tax go up with your house price. If you take the US stock market on average vs the US house market on average real estate doesn’t look that great unless you’re in a real popular area like SF or NY. You can be lazy about picking stocks because there’s low cost index funds but you better pay attention when you buy a house!

Used Car vs New Car

Used car will save you a lot of money because cars depreciate so fast but the invisible cost is higher maintenance. New cars typically start seeing costs savings after 7 or so years and the longer you drive it the more savings. So it’s not very clear cut on this one. Big savings however will come from negotiation, good credit scores, regular maintenance and avoiding changing your car.

 

 

Canada – US Taxes: First Year Tax Return

Before we begin make sure you’ve handled the pre-move checklist and if not you should act on those items as soon as possible.

US taxes will be very unfamiliar territory for Canadians but if you’ve handled most of the checklist it will be surprisingly straightforward. I’ll be advocating for doing your own return here and under the assumption you don’t do business or anything that complicates the tax return.

Residency

Residency is the most important status that affects your tax returns, it determines which country you have to report income and pay taxes to. Correspondingly each country has their own resident and non-resident tax returns. For the US that is 1040 for residents and 1040NR for non-residents. The day of non-residency in Canada is also critical because that day determines when you are no longer subject to tax on your world income by Canada.

The IRS and CRA have different guidelines on how to determine residency and the overlap has the potential to become pretty confusing.

The US has two criteria (note Green Card / US Citizens are taxable regardless of residence):

  1. Green Card Test
  2. Substantial Presence Test

Canada on the other hand has a checklist of “ties to Canada” and asks how much ties you have. Then there’s the deemed residency rules which are to make sure soldiers, diplomats and government workers stay Canadian residents. Canadian residency comes in four types factual resident (you lived there for more than a year), deemed reisdent, deemed non-resident and non-resident. See below

Not only is it confusing, but if both countries claim you as a resident there, you’re in for double tax. Fortunately that’s why there’s the US – Canada tax treaty, to help determine residency and avoid double taxation. These rules supersede what the CRA/IRS rules. Should you be double taxed you can use any tax you paid one country to subtract from there other (so you only pay the max of the two not both).

http://www.fin.gc.ca/treaties-conventions/USA_-eng.asp

Usually from the treaty we can conclude where you work is your economic interest but if you have dependants like a spouse or child in the other country it can be considered a tie or even a permanent home. If you packed your bags and came to the US the situation is simple, if you kept your family in Canada and flew back to visit you’ve caused yourself a lot of residency ambiguity that you should do some deep research on.

Often it is is cited not to file form NR73 to determine residency because it can be used against you. If your situation is clear an NR73 is completely  unnecessary and if it isn’t you should seek tax advice because once an NR73 result is returned it’s practically set in stone that you are or aren’t a resident and you’ll have a much harder time fighting it.

US Tax Return

Make sure you have your SSN (Social Security Number) before you start (Not sure how you made it so long in this country if you didn’t have one). You can get one by walking into a Social Security office with your passport and I-94 form.

A Canadian can have up to 3 options with regard to their US tax return

1040, 1040NR and Dual Status (Both 1040 & 1040NR)

First, do the two US residency tests above to see if 1040NR is even an option. If you meet the substantial presence test but haven’t been in the US 183 days or more then you can still file 1040NRs provided you’ve had ties to Canada but you’ll need to file form 8840. Now of your options I’d avoid dual status because it’s double the return with the 1040 tax reporting requirements for the resident time period with not that many benefits except a few itemized deductions. If you’ve been in the US less than 183 days and had less than $10000 income there you can be exempt in which you pay only Canadian taxes, but you still need to file the forms.

Now, if you were a normal non-resident alien you’d be forced to file dual status, but as a Canadian you can file ordinary 1040 by way of US-Canada tax treaty. The advantage of 1040 is the standard deduction and married filing jointly deduction while you can use 2555 to exempt foreign income. The advantage of the 1040NR is that you’re only taxable on US based income, no need to report foreign income and are not subject to reporting your foreign accounts for the year (and all the nasty tax forms that come with it).The 1040NR can really save you if you’ve forgotten to do items in the Pre-Move checklist.

Okay ready up your Ws, 1042-S, 1099-INT, 1099-DIV, 1099-R here we go (PS Read the instructions on those forms to find out which box they go if this is your first time doing taxes)

1040NR

In a place of great complexity the rules for 1040NR aren’t too bad but on the other hand there is no automation through software. Fortunately the bulk of the return is on the first two pages. Get the trusty 1040NR Guide and you can essentially go line by line and there will be descriptions what goes in each line. All the relevant schedules for income come with 1040 NR which saves you from needing to find forms.

To start, you get the exemptions for yourself and dependants if applicable, this is like the basic amount in Canada except it’s less due to not having the standard deduction. This is effectively income that does not get taxed for those who don’t know.

Non-business related interest income is excluded income for Canadian residents as per Pub901 via the US – Canada tax treaty. If you had tax withheld while you were still in Canada you can put your 1042-S or 1099-INT numbers in schedule NEC to claim it back and exempt  the income in schedule OI. Exempt your dividends if you have 1099-DIV income by the following rules.

If you have a High Deductible Health Savings Plan you can deduct personal contributions to a Health Savings Plan. Contributions can be made up to April 15 of the year following the tax year so you may still have time to get a deduction. Fill out form 8889 for the deduction.

If you moved to the US you can deduct moving and travel costs with form 3503.

If you reported any income that you had to pay tax in Canada on you can file form 1116

If you have itemized deductions you can claim put them on Schedule A. Filling out the rest is pretty straight forward and that’s actually it unless you pull out IRA money or need to pay penalties.

1040

1040 is supported by Turbotax and other tax software you just need to plug in your numbers. However be aware of Canadian account reporting requirements.

Foreign Income Exemption: 2555

Foreign Tax Credit: 1116

TFSA: 3520/3520A

Foreign Mutual Funds: PFIC (8621)

RRSP: 8891 (Note RRSP is a foreign trust exempt from reporting 3520/3520A)

Foreign Bank/Investment Accounts: FBAR/3938

US Canada Tax Treaty Exemptions: 8833

There isn’t any more need to go into detail, since the rest can be handled by tax software and this type of return is the most common. You can easily search the web if you want to handle certain items yourself.

Canadian Return

Make sure you have your T4 (employment), T4A, T4RSP, T2202, T3, T5, etc (Put numbers from these forms the right box if doing manually, that’s doing your taxes🙂 )

Canadian returns can be done in Turbotax, Ufile or manually with a few small tweaks. The CRA is pretty good about putting all the information out and organizing it in a very accessible way. Pretty much all under the sun that you need to know is in the Emigrant’s Guide, here are a few things that stood out:

  1. You need to pay capital gains as if you sold everything on the day you left
    See: T1243 and T1161 and see if they apply to you. Real property is exempt though you can file T2061 for a capital loss
  2. Certain Federal and Provincial deductions such as the basic amount are prorated by the number of days you were in Canada. ie 330 days in Canada / 365 days a year multiplied by your amount
  3. You do not need to report non-Canadian income after the day you are non-resident, but you can via section 217 but the only advantage is being able to claim your deductions without them prorated but that’s if you report at least 90% of your world income
  4. You use the tax package of the province you resided in before you left
  5. You put the date you Left Canada date on the first page of your return

T4056 can give you a full blown explanation on all the details but it’s mostly the same stuff.

Ufile works lovely with emigrant returns but if you use Turbotax you have to do a few adjustments.

  1. Even though you were a non-resident at the end of the year, you were a tax resident of Canada for the year (See Canadian residence above) you are filing so put in the province you resided in before leaving Canada.
  2. You will have trouble plugging in your non-Canadian address because of 1 (You might have to manually adjust)
  3. Answer yes to “Did your Canadian Residency Change In 2013? ” or if you’re in forms mode go to INFOWS and fill in the leave date, Part XIII Income and foreign income

Without going into a turbotax tutorial that’s it. The hardest part is waiting for all the forms to come in, they’re mailed in Feb if that wasn’t late enough and you have to wait even longer for them to trickle down to the US, all the while you are waiting anxiously.

After-Move Canadian Considerations

  • Income: Remember all Canadian income after moving is subject to Part XIII withholding tax at a flat rate of 25%. That includes rent on property at gross income, though you can file NR6 and reduce it to net and file a 216 return at the end of every year you have income. Even if they don’t withhold you have to pay it and you’ll need to open a non-resident account to pay taxes.
  • Selling Real Estate: DO NOT sell real estate in Canada without first getting a certificate of approval from the CRA or you will be subject to a 30% tax on the gross proceeds.
  • TFSA Contributions: after moving your eligible TFSA limit is 0. Do not contribute or you will get the 1% / month penalty (for US tax considerations you shouldn’t even have one by now)
  • RRSP Withholding Tax rate is 25% flat for non-resident without making it an annuity (if you hate filing 8891 to defer tax on gains take the hit and close it). The withholding tax is it, no need to add to income like a regular RRSP withdrawal.
  • Home Buyer’s Plan: If you haven’t withdrawn, cancel any plans to. If you have pay it back, you’re not eligible to be in the plan as a non-resident
  • Federal / Provincial Rebates: All the GST/HST, OSTC, UCCB are goodies for residents only, if you got any after you were non-resident you have to return it.

Closing Remarks

Remember to submit the taxes by mail. First year and final year returns cannot be done by electronic filing. If you attempted the tax returns yourself and are in a serious level of doubt on some definitions, find a tax consultant familiar with both US and Canada taxes (yes it will cost you an arm and a leg because they’ve got you). For me I chugged through all the paper forms manually and cross-checked with Turbotax where I could. If you don’t hunt for every possible deduction under the sun or need to mess with RRSPs and capital gains the returns should take you an hour or two each.

Also there’s an amazing resource where I get most of my cross border tax questions:

http://forums.serbinski.com/viewforum.php?f=2

Happy Tax Filing… Okay it almost sounded fun but the real fun is when you get a return.

PS I’m not a tax accountant, this is just a compilation of my research and you need to do your own so this does not constitute as any formal tax document and cannot be held liable for an issues caused..

Leaving Canada Checklist

Here are some of the items that need to be handled before you leave Canada for the US and why. If you moved but haven’t done these items you should do so as soon as possible. Generally the more cleanly you break financial ties with Canada the easier life will be with US taxes.

If you moved to the US to work without a specified end date in the contract then yes you are a US resident in most cases unless you’re a diplomat, a soldier or keeping a house with spouse and/or children. That means US tax/reporitng requirements.

I know this sounds complicated but if you hire a consultant their usual rates are $200 – $400 /hr and they’ve been known to make mistakes. When it comes to finances no one has as much incentive as yourself and certainly you should know your finances better than anyone else unless you’re rich of course.

Recommended Actions

Close Margin/Investing Accounts

Keeping a Canadian investment account is a no-no (except RRSP), you and/or the broker could be punished by the SEC.

Once you’re no longer a Canadian resident you cannot trade. You must transfer investments to a US broker. Regardless of whether you cash out or not leaving Canada triggers deemed disposition taxes and you’ll have to pay taxes as if you sold everything anyways.

Under rules set out by the U. S. Securities and Exchange Commission, specifically Section 15(a)(1) of the Exchange Act, securities brokers and dealers are restricted to providing services only to residents of their own country

http://www.serbinski.com/working-in-usa/rrsp.shtml

Close TFSA (Tax-Free Savings Accounts)

TFSAs are a pain in the butt for tax filing, accountants will charge $400 for each one and it’s not tax free in the US!

TFSAs are not recognized by the US and so will get harsh treatment by the IRS. The worst part aside from paying US taxes on earnings inside TFSAs are the tax reporting requirements. TFSAs may be considered foreign trusts which means you have to file complicated forms 3520, 3520A and PFICs if you have mutual funds in them.

If you are brave and love tax forms or missed your boat to close the TFSA. Here’s where you’ll have a shot at filling 3520s

http://forums.serbinski.com/viewtopic.php?t=4187

RRSP

RRSP gains are taxable in the US but you can defer them every year.

If you’re staying in the US long term the recommendation is to sell everything in your RRSP if you don’t have much since it’s not worth the work. All gains in an RRSP are taxable in US, require special tax forms all while you have much better investment options in the US such as lower cost US index funds.  On the other hand cashing out an RRSP always involves a withholding tax.

Alternatively, you can keep it until you retire since there’s an exception with SEC that allows you to keep trading stocks so it’s not as bad as regular investment accounts but every year you’ll need to file 8891 to defer the tax on the gains which tends to become a burden. So it really comes down to how long you want to stay in the US and your fear of RRSP early withdrawal withholding taxes.

Either way you may want to do some artificial transfer to boost your cost-basis before moving which should save you from the IRS viewing that growth in the RRSP prior to moving as gains.

When you withdraw as a non-resident the US-Canada tax treaty allows you to withdraw from the RRSP at a flat 25% tax rate which can be used as a deduction on the US tax return. If you wait till the retirement and convert it to an RRIF you can withdraw at 15%. Both of these are  your final tax obligation to Canada, no need to report the withdrawals as income to Canada.

If you have no/little income that year you can elect to withdraw as if you were a resident and file a 216 return by reporting your world income. You’ll pay the usual 10%/20%/30% withholding tax and add it to your income (see link below for withholding rates).

http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/rrsps-for-retirement/Pages/Making-RRSP-withdrawals-before-you-retire.aspx#

Notifying the CRA

This is important because the CRA needs to know your residency to assess taxes and benefits. You’ll want to do this to make sure they aren’t sending you GST Rebates or Ontario Sales Tax Credits when you’re not eligible. If they paid you have you moved, you have to pay it back. Be careful if you take resident benefits, the CRA may consider you a resident which means you’ll be subject to Canadian tax on your world income.

Use this link below to update your address

http://cra.gc.ca/newaddress

Health Card

Canadian provincial health plans are more than likely no good in the US plus could be seen as a residence tie to Canada.

Your health coverage will typically end the day you cease residing in the province (check with your provincial health ministry). You can continue coverage if you can prove from your contract that work is temporary but for most things your coverage is extremely limited and you’d end up needing health insurance so there isn’t much of a point.

To end your health coverage if you haven’t moved yet go to Service Ontario or similar place and if you have mail in the correct forms and return your health card (some people I know didn’t return the card).

Insurance

Most insurance companies hate non-residents… or like to bill them through the roof

Double check with your insurance whether you can still cover your car/house if you didn’t sell it. You’ll find they might get finicky about residence requirements, I recommend talking to a supervisor as moving to another country is usually a special case.

Financial Assets  / Bank Accounts / Credit Cards

The IRS despises your foreign accounts and, you, will despise the IRS’s tax forms.

Inform all banks, credit cards and such that you’re non-resident and update your address. Some won’t want to keep your account, that’s good to know so you can go ahead and close them. Close as many as you can; the more you keep the more accounts you have to report on for your US taxes. The IRS wants to know about every single one of your foreign accounts in detail. Search up FBAR and 8938 to know the tax pains of owning foreign accounts. You can keep a few but make sure most of your financial assets are sent to the US.

Your banks should start sending NR4s instead of T5’s to report your interest. Use the US Canada tax treaty to reduce any if any withholding tax. It’s also better to do this to show you’re cleanly severing your residence ties with Canada.

Things that should be OK

Driver’s License

Getting a driver’s license is a pain, especially in places in Ontario where you have to drive with someone who’s licensed 5 years in the passenger seat for a year. You clearly don’t want to go through that process again and thankfully you might not. I’ve phoned up MTO a few times and they’ve always said I could keep my license as long as it has a Canadian address. If not, or you don’t have a Canadian address to use, don’t fret get a US license as they can be usually be converted back to a Canadian one should you ever want to go back. The US licensing department may or may not take your Canadian license as part of their licensing process. You also may or may not need to do retesting depending on whether they recognize your Canadian license.

Financial Assets

Keep it limited. The more you have the more you need to be careful. There are thresholds for tax reporting for FBAR and 8938. Once the total of all your accounts reaches that number you must report all of them and the max you held in each account throughout the year, etc.

<$10 000 is the magic number to avoid the tax forms!

See link below, (I hope you closed your TFSA… or you’ll need 3520s still)

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

Property

If you don’t mind tax pains you can keep property in Canada. If you rent it out file NR6 in January of the current year (not after the year like taxes) or before you collect any rent to reduce your withholding tax to net income. Anything before an NR6 approval is received should withhold at 25% gross to your non-resident tax account.

Withholding tax is Part XIII tax which is 25% on gross without an approved NR6 or 25% on net if you do. You have to file a section 216 return every tax year you have Canadian income in addition to reporting it to the US. Before you sell your house you’ll also need a certificate of compliance and handle the capital gains otherwise you’re in for a 30% tax of the gross sale price (ouch!).

Canadian Mailing Address

I spoke with one person from the CRA and he said it’s okay to keep a parent’s place as an address. Note however though this could be seen as a residence tie.

Summary

Preparation before moving can save you huge headaches.

If you want to come back to Canada, make sure you keep enough ties, use form 8840 to show the IRS you have ties and file as non-resident to avoid US tax reporting/filing headaches.

For the rest of us, if you like simplicity then sever where you can, and sever as mercilessly as you can. I know how long it was to setup those Canadian accounts and your relationship with your bank and all but if you want to keep your life simple at tax time these are your options. You can keep some Canadian stuff but only keep a little and remember that each thing you keep has a bit of overhead. With everything handled you can better enjoy a life in America.

So either way I hope this eases your burdens during tax season. As a doctor said to me once the only thing you can be sure of in life is death and taxes. Kind of gloomy but I hope I’ve helped with the latter.

If you’re done this you may want to see Arriving in USA Checklist for next steps once you’ve moved.

Getting a Washington State License

License Requirements for Residents

If you are a new resident of Washington state you are required by law to get a driver’s license here after 30 days. Getting a Washington State license as a Canadian will typically require retesting (Written/Road/Vision Tests) unless you had a license from any of the places below in the Washington Department of Licensing list (Jan 2014).

  • Another U.S. state
  • British Columbia
  • Germany
  • South Korea

Licensing Tests and Exemptions

As a Canadian unless you’re from BC you’ll need a knowledge and road test. I’ve read posts however of people from Ontario getting their licenses in New York State or BC, which would allow you to skip these tests (probably will save you testing fees in exchange for licensing fees). From what I’ve seen people put their friend or relative’s address to satisfy address requirements. I’ve also witnessed some people never got a license locally but that’s an illegal route. If you have a full license already the tests aren’t hard but are rather costly.

I’ll list out the costs below

  • $35 written test
  • $45 road test
  • $2 for using debit or $3 for credit cards
  • + ~$20 written test from driving school
  • + ~$50 driving test from driving school

Total was approximately $152 for me
^Note the driving school fees are in addition to the Department of Licensing (DOL) fees… I’m not sure why they can charge a fee for not rendering any of those services but they do. Due to some licensing offices becoming too full they’ve outsourced the testing to driving schools so you won’t even have a choice when it comes to paying twice.

Typically if you do the tests at a driving school you’ll pay there first, then pay again at DOL when you get a vision test, your temporary paper license and picture taken.

Knowledge Test

The knowledge test is common sense but there it definitely does not hurt to read the drivers book and try the practice exams. Pretty much all the questions will be from the practice exam or structured similar to it. All the questions come from content in the book.

You need at least 20/25 to pass.

Road Test

The road test is pretty simple. Just turns, driving, uphill/down hill parking, parallel parking and the odd one is reversing around the curb. Watch the DOL videos, they’re pretty much exactly what you’ll get on the test. Unlike the Ontario G2 test I took there was no highway or merging in heavy traffic so I found it much easier.

NOTE: Odd things driving in Washington / General

  • Do not go into the intersection unless you can make the whole turn. I know elsewhere like Toronto for a left turn you can wait in a space about 1/3 into the intersection but not here.
  • Yellow left arrow does not mean left turn light is about to go red; it means yield. You should treat it as a full green circled light (when there is no arrow) where you’d wait and yield to oncoming traffic.
  • Green left arrow means you have right of way (same as Toronto) and red means don’t left turn.
  • Know your mirrors and car size well because backing around the corner you’ll need to stay as close to the curb as possible without hitting it (my examiner wasn’t very strict on this)
  • Common Rules: Waiting 3 seconds at the stop sign, yielding to pedestrians, right of way,  etc…

You need 80% to pass.

Getting Your License

If you’ve passed both tests with 80% you’re almost done. There’s actual one last test, the vision test; if you can pass that without glasses you’re good to go with no restrictions. Pay your fee $80 (+more for using a debit or credit card) which is in addition to what the driving school already charged. They let me keep my Ontario driver’s license though which was interesting, so now I have two licenses. Lastly you’ll need to get in line again, this time to get your picture taken and receive a paper license. Your actual license will take a week or so to arrive in the mail. So if you’re at this step congrats, all the fees and tests are over.

Driving School I Used / Closing Remarks

I did my test at 911 Redmond because they had the best ratings on Yelp and the prices were reasonable. The place was really empty because I came when they opened at 8:30 AM, so I  got to do my test right away (no booking is required). When you pass that you can schedule your driving test.

The driving test was in a Nissan Versa that looked very well kept. For $10 more you get to use the school’s car which was a very good deal. My driving examiner was very kind,  understood my concerns and was willing to answer all my questions. During the test I got too far away from the curb but the examiner said not to worry (within reason), it won’t be a problem since you’d never do this in real driving.

For around $70 for a written and driving test with a car its a good deal. Since it includes the instructors car you’ll save a hassle from needing to prove insurance. You’ll pay a bit more if you want a practice run with the car, which might be useful if you weren’t a routine driver from before and/or need some getting use to the car.

Note the hills around Redmond are very steep but on the good side weekend traffic is very clear.

Car Insurance is also nicer here (though still mandatory). I did online estimates and my car insurance was 1/3rd of what I’d pay in Toronto. That’s an amazing amount of savings, so you’ll definitely enjoy the driving more here🙂

Life in America for a Canadian: Credit Cards

Below was my post from RFD on how to get a Credit Card in America as a Canadian new to the country. One thing a Canadian will quickly find out is being a new immigrant to America  means you have no credit history, which pretty much locks you of Post-paid phone plans, utilities, credit cards, renting places etc or it results in the need for secured deposits with them. You will also need an SSN as soon as possible which is needed to build a credit history. Meanwhile trying to build credit history is a path fraught with a big problem: you need credit to build your history but applying for it hurts your credit history. In other words if you apply and get declined you will have hurt your credit with no benefit to yourself. So while I highly suggest getting credit ASAP do not apply for too many and do not apply unless you are very confident you’ll be approved. — I think when it comes to Canadians in the US we have 3 choices:

1. Canadian Institutions in the US / US Institutions in Canada (AMEX*, RBC, TD**)

These will be pretty much the only places that will pull some form of your Canadian credit history, so if you have good history as long as there’s no asterisks* it should be straightforward. Pretty much everyone else doesn’t care about your Canadian credit history in America, if they do it’s an rare exception which leads me to 2.

2. US Institutions using special consideration (Bank of America, Chase, Credit Union)

These places have a standard process and usually if you do that you will just end up getting your credit request denied. Some may bypass standard process if you have the right connections, others will depend on which branch you visit. Bank of America For me, Bank of America opened a Corporate client credit card (unsecured cash rewards 10k limit) because they knew I worked for a big corporation nearby . There was no SSN required just employment agreement. I also believe as per RFD posts, Bank of America will open to Canadians if you go to a branch in New York State near the border. From what I can tell I lucked out and got a great credit card with rewards and good credit limit (getting a travel rewards as I speak) Chase With Chase, today I went to open a chequing account (and collect $150 for opening one), she told me if you put $10 000 in savings there they will give you special consideration even if you have no SSN, no history (I think you can take it out after you get the card). FirstTech Credit Union If you work for a large corporation in Redmond they will give you pr-eapproved credit card and auto loan. They didn’t seem to follow up for me so I left it as is. Now remember all of these are special exceptions not the norm and they depend on connections, locations and means ($$), if I forgot to list some please feel free to add in.

3. The Usual: Student, Secured and No Credit History Credit Cards

If you can’t find any of the above for you, you will have to start like any American with bad/no credit. Capital One Capital OneQuicksilverOne I hear is a good one however someone on RFD got declined for it. Capital One Journey the student card comes with a free transunion credit score though it’s a student card it’s great for those without credit. Despite not being a student the rep told me I could apply anyways. I haven’t because I’m pretty paranoid about online applications since they’re likely to lead to hard credit inquiries which hurt your credit score. Personally I’m not a fan of secured cards it’s just monthly fees for nothing, but that would be my last resort. *You’ll need a history with the Canadian Amex **TD Credit cards have gotten really picky. I had the same thing happen and I called in (since they also messed up my name) and they want to verify your identity by checking you live in a US address inside their “footprint” otherwise you’re not eligible. I believe people have been declined on “not in footprint” before as well. — If you want to learn more about the ins and outs of credit I found Doctor of Credit has an amazing explanation that will summarize it all If anyone has some additional suggestions about what worked for them or want to know which branches I went to please feel free to comment/email me.