Tax Residency. Why It Matters and How It Is Determined.
Your tax residency, in Canada or the United States, determines whether the CRA or the IRS has the power to tax you on your worldwide income or at least who gets to tax you first. There are significant tax differences between Canada and the U.S. Those differences create tax opportunities and problems. Which tax laws apply can have a major financial impact, and if you get it wrong, you run the risk of a higher tax bill and potentially incurring interest and penalties. You may also miss out on important tax opportunities.
Our latest video explains the importance of tax residency. It emphasizes that the onus is on you, the taxpayer, to establish the facts necessary to establish your tax residency. Canada and the U.S. take completely different approaches to evaluating tax residency. You may be a tax resident of both countries. In that event, the Canada-U.S. tax treaty tie-breaker test applies. On top of that, you may also have U.S. state tax obligations independent of the determination for U.S. federal and Canadian tax purposes. It is critical you understand where you are a tax resident.
The video provides an overview of how Canada and the U.S. determine tax residency. Hint: Your immigration status does not decide the matter. It also explains the steps in the Canada-U.S. tax treaty “tie-breaker test” that applies if you are a tax resident under both Canadian and U.S. tax law.
You can watch the video on Andersen Tax LLP’s YouTube channel HERE
As with any tax situation, the specific facts involved will affect how the law applies and will determine the outcome. The video provides general commentary and is not intended to be legal or tax advice. If you have questions about tax residency, you should seek professional advice. We invite you to contact us to discuss your situation. We can help you assess your situation, review your options, and implement a plan that best achieves your goals.