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By Gigi Suhanic
National Post
FP Money
Saturday, January 11, 2003
When to file a U.S. return
Question:
I am a Canadian and spend considerable time in the United
States. What are the rules for having to file a U.S.
tax return?
Answer:
Some Canadians, especially those who earn an income
in the United States, or spend time there, may have
to file a U.S. tax return. First, do the math to determine
if you meet the "substantial presence" test,
says Adrian Mastracci of KCM
Wealth Management in Vancouver.
Start with the days you spent in the United States
in 2002. Add one-third of the days from 2001, plus one-sixth
of the days from 2000. If it totals 183 or more days,
and you spent more than 30 days in the United States
in 2002, then you have met the requirement to file for
2002.
You may be able to take advantage of the Canada-U.S.
Tax Treaty provisions to avoid double taxation. Therefore,
examine your situation thoroughly and determine whether
you're considered a U.S. resident for income tax purposes.
Professional advice is prudent for this complex area.
Adrian Mastracci, investment
counsel at Vancouver’s fee-only KCM Wealth Management,
says, “You may be able to take advantage of the
Canada-U.S. Tax Treaty provisions to avoid double taxation.”
Question:
In my new will, I would like to leave my principal residence
to my older daughter, who is a British citizen and resident.
Is it possible to do this so that it does not form part
of the estate and thus be heavily taxed?
She would presumably not be liable for Canadian income
tax if she sold it, as she is not a resident of Canada.
Answer:
If you leave your principal residence to your older
daughter in your will, there will be no income taxes
payable when you die, says Peter Brow.
There may, however, be probate fees. These fees fluctuate
significantly across Canada.
At the high end, Ontario's fees are $5 per $1,000 for
the first $50,000 and $15 per $1,000 above $50,000.
For example, if you had $500,000 in assets (including
your residence), these fees could reach $7,000.
To avoid probate fees, some individuals put their assets
in joint names with their children so these assets do
not form part of the estate. The Canada Customs and
Revenue Agency distinguishes between a change in "beneficial"
ownership and a change in legal interest.
A beneficial change is a true joint-ownership arrangement,
where your daughter shares in the residence costs. This
option eliminates the probate fees but you may run into
other problems. Your daughter may have to pay non-resident
capital gains tax on her share of any gain from the
time she becomes a beneficial owner. These taxes could
greatly exceed any probate fees payable if you had left
your residence in your will.
A change in legal interest avoids the capital gains
tax because there hasn't been any real change in ownership
for tax purposes. Unfortunately, your goal of eliminating
probate fees may not be accomplished because CCRA claims
that a beneficial change is required to do this.
This is a complex matter and you should definitely
get legal and other professional advice.
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