International Tax Concepts for Cross-border Employees

1. Cross-border Tax Issues Seminar International Tax Concepts for Cross-border Employees

2. AGENDA • Basic Tax Concepts for Cross-border Employees • Tax Residency – U.S. vs. Canada • U.S. - Canada Tax Treaty considerations • Income Tax – reporting/withholding for employers • Social Security Tax • Retirement Plans • Common Cross-border Issues

3. Mo Ahmad mo.ahmad@trowbridge.ca Vancouver Office, Trowbridge 604.288.7700

4. Who We Are • Trowbridge Professional Corporation is a specialty tax firm, providing tax services for Canadians that live and work around the world • Offices in Toronto, Montreal, Vancouver and London, • Through our affiliation with the Global Tax Network we are able to provide global solutions to our clients.

5. Tax considerations relating to relocating from / to Canada • Canadian taxation based on “tax residency” • Factual Determination • U.S. taxation based on U.S. citizenship/Greencard Status or Substantial Presence Test • Days of physical presence • Consider State residency • Short-term move – file in both Canada and the U.S. • Permanent move – Sever Canadian Residency For Tax Purposes – file final Departure tax return in Canada

6. Canada Tax Residency - Common Primary and Secondary Ties • Primary: Vacant Home, leaving dependent spouse in Canada. • Secondary: personal property left behind in Canada, maintaining Canadian bank accounts, Canadian credit cards, professional and/or club memberships in Canadian organizations, maintaining provincial health coverage, Canadian drivers license.

7. U.S. Tax Residency “Substantial Presence” test: • Were you present in the U.S. 31 days during the current year, and • 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting: • All the days you were present in the current year, and • 1/3 of the days you were present in the first year before the current year, and • 1/6 of the days you were present in the second year before the current year.

8. U.S. – Canada Tax Treaty Issues • Purpose to avoid double taxation • Employment Income – exemption under Treaty • Less than $10,000 • Spend less than 184 days in any 12 month period and your remuneration is not paid by, or on behalf of, a person who is resident in the United States and is not borne by a permanent establishment in the United States • Residency “Tie-breaker” rules • permanent home • center of vital interests – personal and economic ties • habitual abode

9. Employer Reporting / Withholding • Employer Reporting / Withholding requirement even if exemption under Tax Treaty • Income Tax Withholding Waiver • Frequent Business Travelers

10. Social Security Taxes • US FICA and Medicare taxes vs. Canadian social security taxes (Canada Pension Plan and Employment Insurance) • U.S. Canada Totalization Agreement

11. RRSP’s/401(k)/IRA • RRSP’s Tax protected while in the US – you can also contribute in year of departure and any other year (may not be beneficial to do so) – file Form 8891 • IRA’s/401(k) tax protected in Canada until disposition • May be best to leave IRA/401(K) as is until you need income in the future – not taxed in Canada or U.S. until disposed

12. Common Cross-border Issues • Sale of home – U.S. treatment vs. Canadian treatment • Clearance Certificate / Withholding Taxes • Executive compensation / stock option plans • Foreign Disclosure Requirements • Form T1135 / FBAR • Impact on Investments • Tax treatment for dividends / capital gains • Foreign Disclosure Requirements • Estate planning / update will

13. Questions? Mo Ahmad mo.ahmad@trowbridge.ca Vancouver Office, Trowbridge 604.288.7700

14. Legal This presentation is for information purposes only and does not provide tax or legal advice. Due to the complex tax rules for U.S. and Canada, it is imperative that you obtain professional advice from a qualified tax or legal advisor specializing in cross-border tax planning before you act on any of the information provided.