Author Topic: CDN Citizen + Spouse w/ Article XIX of the Income Tax Treaty earnings  (Read 99 times)

109827

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Phil,

Thanks in advance for any guidance you might be able to offer.

I'm currently hoping to hear any recommendations on how to optimize my current financial situation as it relates to my tax obligations to the CRA. For context, my spouse is covered under Article XIX of the US & Canada Income tax treaty and thus has no taxable Canadian income despite earning a salary and paying US tax. I on the other hand am employed full time as well as have sole proprietor small business income coming in. Two important points of clarity: I am a Canadian national, and my spouse is a US National who is a CDN Permanent Resident.

My initial point of curiosity is how I can legally use the tax code to optimize my tax liability using my spouses unusual situation (Article XIX). While the ask is short and sweet, I can assure you I've been struggling to find clarity around the best way to do this. For instance, I know RRSPs are treated as investment income by the IRS so that's something we've stayed away from for her.

Secondly (if you have time) I'd be obliged to hear your thoughts on how my spouse can start their own small side business (and or even work with me since we have complementary professional services) and if so, what your recommendation would be to avoid any IRS / CRA entanglements.

As part of your insight, I'm open to hearing advice in almost any category that could help us (structuring business income, spousal efficiencies, investment recommendations like RRSP etc.)

Here are some details you might find useful:

ME
Married, filing separately
Salaried full time employee @ 125,000 + 12.5k potential bonus
Sole proprietor side business, bringing in roughly $2800/mo.

10k investment in stocks
288k mortgage
12k TFSA
84k RRSP


SPOUSE
US National, CDN Permanent Resident
Married, filing separately
Is full time salaried
Pays US tax but submits yearly zero'd out tax packages to the CRA as well
Pays $0 in CDN tax due to the Article XIX in the US / Canada Income Tax Treaty
« Last Edit: June 11, 2018, 08:18:23 PM by 109827 »

Phil Hogan, CPA, CA, CPA (Colorado)

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Hi there

That's correct, as a government employee she should not be taxable on her US employment income. But she would be taxable on all other income earned.

RRSPs are not treated as taxable for US purposes. They remain tax free and deferred from tax pursuant to the treaty. They are only taxable when funds are distributed from the RRSP.

In most cases it makes sense to start the business as a sole proprietorship to see how it goes. You could incorporate the business initially, however that would get expensive from a compliance perspective. If and when you do decide to incorporate you'll want to ensure you plan properly for any US implications. Mainly related to your US spouse if they own shares.

Hope that helps

Phil
Phil Hogan, CPA, CA, CPA (Colorado)
250-381-2400
Hutcheson.ca
phil@hutcheson.ca
* The information contained in these posts should not be construed as professional advice and is for informational purposes only.