Navigating Cross-Border Taxes Between the USA and Canada – Seeking Guidance
Hi everyone! I find myself in a bit of a complicated tax situation and could really use some advice for my 2024 tax filings.
Here’s My Background:
- I lived in Canada until mid-2024, then moved to the U.S. on a TN visa (first to NJ, now residing in NYC).
- Since I’ve worked in both NJ and NY, I’m assuming I’ll need to file part-year state tax returns for each. Are there any specific complexities with NJ and NY taxes that I should be aware of? How does the process work?
- Having interned in the U.S. for 4 months in 2022 and 8 months in 2023, I believe I qualify for the substantial presence test and will be treated as a U.S. tax resident for 2024. Can someone confirm if my understanding is correct?
- I still hold a Canadian driver’s license and health card, although I haven’t used Canadian healthcare since my move. While I’ve been approved for a NY license, I haven’t transitioned yet—might this affect my tax status?
- I have set up U.S. bank accounts and a lease on an apartment, but I don’t own a home, have no dependents, and lack Canadian RRSPs, TFSAs, or other investments. My only links to Canada are a checking account, a credit card, and a cross-border banking account. Would I still need to file taxes in Canada?
Income and Investments Overview:
- Canadian Income: Minimal dividend income (T5) from my Canadian LLC, earned in early 2024 while I was a Canadian resident.
- U.S. Income: A W-2 from my full-time employer in the U.S., including NJ and NY state tax.
- U.S. Investments & Retirement Accounts:
- Roth 401(k): Employer matches 4% to a traditional 401(k)
- Roth IRA
- Personal brokerage account (receives dividends and has holdings)
- High-yield savings account (HYSA) (generates interest)
Previous Canadian Tax Issues (2023):
- While interning in 2023, I filed taxes in both Canada and the U.S., claiming foreign tax credits with CRA.
- I unfortunately missed CRA’s requests for proof of these credits, which has led to a substantial outstanding tax balance accruing interest. I’ve submitted the necessary documents, but my account still reflects a balance—presumably, it’s still under review.
- Late filing occurred in Canada due to a personal injury (hospitalized for surgery and subsequently on bed rest). I have since submitted an RC4288 to request relief from penalties and interest.
My Questions:
- Should I engage a cross-border tax professional, or can I manage this myself without making major errors? If so, which service or professional do you recommend?
- What actions should I take for my Canadian tax return in 2024? I’ve read that a departure return is necessary to officially end my tax residency (see question 3)?
- In 2025, I plan to receive additional Canadian dividends from my LLC but have read that as a U.S. resident, I should expect an NR4 instead of a T5. My accountant, who handles my dad’s business taxes, thinks I’ll receive a T5 since he’s not fully aware of my situation. What’s the correct process, and how do I ensure accurate filing in both countries?
- Do U.S. taxes apply to my dividends from the Canadian LLC (T5 income)?
- How do I effectively manage my state tax returns for NJ and NY? Will I owe taxes in both states
One response
It sounds like you have a lot to navigate with your cross-border tax situation! Here are some thoughts on your questions:
Hiring a Tax Professional: Given the complexity of your situation—especially with residency issues, multiple income sources, and cross-border implications—hiring a cross-border tax professional is highly advisable. They can ensure you comply with both U.S. and Canadian tax laws, optimize your tax situation, and help you deal with any outstanding issues with CRA.
Canadian Tax Return for 2024: You are correct that you should file a departure return (T1) to officially sever your residency in Canada. This return will account for the income you earned up until your departure. Make sure to report your Canadian LLC income, as it will be considered taxable.
T5 vs. NR4 in 2025: Your accountant may be mistaken. As a U.S. resident, you should indeed expect to receive an NR4 for dividends paid to you from a Canadian corporation. Ensure that your accountant understands this and gets the paperwork in order to reflect your residency status accurately.
U.S. Taxes on Canadian LLC Dividends: Yes, U.S. tax residents must report global income, so your Canadian LLC dividends (T5 income) would be subject to U.S. taxation. You may also qualify for a foreign tax credit if you pay taxes on that dividend income in Canada.
State Tax Returns for NJ & NY: You will need to file part-year resident tax returns in both states. If you earned income in both states while being a resident in each, you will owe taxes to each state. Generally, you can claim credit for taxes paid to another state when filing to minimize double taxation, but the specifics can depend on your total income and where it was earned.
Reporting U.S. Investments to Canada: Yes, as a former Canadian resident, you might still have reporting requirements on your U.S. investments. FBAR (FinCEN Form 114) applies if your aggregate account balances exceed $10,000 at any point during the year. Additionally, Form 8938 may also apply, depending on the value of your foreign assets.
CRA Tax Issues: If CRA is still reviewing your prior return, your outstanding balance may not be finalized just yet. Keep following up with them. Documentation submitted for relief (the RC4288) is the right step; however, waiting may be all you can do unless you seek further advice from a tax professional.
Health Card and Tax Residency: Retaining a Canadian health card may not directly influence your tax residency, but having significant ties to Canada (like your driver’s license, health card, etc.) can be considered in residency determinations. Ensure you have a clear severance of ties when filing your departure return.
Dissolving Canadian LLC: If you do not plan to use the LLC anymore, dissolution may simplify your tax situation and reduce future compliance issues related to maintaining the company. Consulting with a professional in Canadian corporate law/taxation can provide guidance specific to your LLC’s situation.
Your situation is quite intricate, and tax regulations can be nuanced, especially in cross-border contexts. Getting professional help now can save you from potential pitfalls later on. Good luck with your move and your tax filings!