Personal Finance

Moving from Canada -> USA tax implications

  • Last Updated:
  • Aug 15th, 2019 12:10 am
[OP]
Newbie
Jul 8, 2017
77 posts
64 upvotes

Moving from Canada -> USA tax implications

Im a dual US/CA citizen. Currently an Ontario resident. I am self-employed sole-prop (Amazon.ca FBA). I net $95,000 CAD per year. I have no US tax liability and harvest FTC's (Foreign Tax Credits) yearly. Considering moving to Michigan and trying to grasp how my taxes will change while continuing my Canadian business (its mostly online).

How I understand it is all Canadian income will be taxed by the CRA @ 25%. I will no longer be liable for CPP/EI (Not sure if I'll be liable for Ontario income tax). As a Michigan resident Ill be liable for state income tax, self employment taxes (FICA) @ 15.3% and federal income tax. I will still be able to harvest FTC's from the Canadian tax for use against some US tax owed. Can I only offset US federal income tax? Not sure.

Doing quick n' dirty math assuming different scenarios I get these numbers:

* Ontario resident, $95,000 CAD income, total tax: $26,455 CAD (includes federal, provincial, CPP/EI premiums)
* Canadian non-resident, $95,000 CAD income, total tax: $23,750 CAD (25% withholding tax rate) and Michigan resident, $72,000 USD ($95,000 CAD) income, total US tax: $21,082 USD ($27,932 CAD) (Federal Tax: $8,020 USD, FICA: $10,173 USD, MI State tax: $2888 USD)

Assuming the above, being a Michigan resident while continuing my business in Ontario my tax liability appears to increase by ~$1500 CAD (but it gets a lot worse). My $23,750 Canadian tax liability would be FTC's, but this would only offset my US federal taxes owed ($8,020 USD) and I would still be liable for state and FICA taxes. In other words, my tax liability would be: $23,750 CAD to Canada, and $13,062 USD to the US. In summary my yearly net tax liability would be $41,059 CAD ($23,750 CAD + $13,062 USD). Plus, I would also need to get private health insurance.

If I become a Michigander, is my thinking above correct? Would appreciate some others input. Would my tax liability really increase that much? Would I still be liable for Ontario income tax? Would my FTC's offset FICA or state income tax? Is there anyway I can make this work and/or smarter ways to do this? Its sad to see my tax liability would increase from $26,455 CAD to $41,059 CAD by moving to the states.
3 replies
[OP]
Newbie
Jul 8, 2017
77 posts
64 upvotes
Update: Talked to an accountant and looks like being a non-resident of Canada I will not be subject to Canadian income or withholding tax because my business will not have a permanent establishment (its all amazon.ca sales, inventory stored in Amazon FBA located in Canada).

Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.
Deal Addict
Jan 20, 2016
2014 posts
978 upvotes
Houston, TX
speer12345 wrote:
Aug 13th, 2019 7:46 pm
Update: Talked to an accountant and looks like being a non-resident of Canada I will not be subject to Canadian income or withholding tax because my business will not have a permanent establishment (its all amazon.ca sales, inventory stored in Amazon FBA located in Canada).

Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.
USA is different from Canada in term of taxation. Actually as US citizen you HAVE to report and pay any difference in taxes even being Canada tax resident. Probably till that point your Canadian tax obligations were bigger than US (federal) thus you pay only Canadian taxes effectively.

Once moved to Michigan and become a physical resident of MI, probably you have to pay a state portion of that (I'm not sure you should pay FICA in out-of-state income, rather not).

IMO your calculation of taxes when moving to MI is a bit incorrect.
1. You have to pay flat 25% on ALL your income from Amazon (IF that is registered as Canadian business, not as US one). Doesn't matter is it online or not, matter where the business is registered (in that case both Amazon and your business are registered in Canada, right?)
2. You have to pay only federal income tax on your "overseas" income from Canada for US minus FTC (that probably should be NIL as Fed tax rate is less than 25% on such amount)

Imo you could find more info and better advice on https://forums.serbinski.com/viewforum.php?f=2 but for me looks like your numbers are not right in terms of US taxes, either I missing some info or misinterpret it.
- No politics in sigs - Mods
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Apr 5, 2009
948 posts
332 upvotes
Toronto
speer12345 wrote:
Aug 13th, 2019 7:46 pm
Im still surprised my income tax liability would increase though by becoming a Michigan resident. It thought taxes would be lower there.
I have little to contribute aside from the fact that talking to accountants specializing in cross-border taxes is the only way, as the tax laws in the US are so convoluted. Too many variables at play, not likely that you will be able to cover them all in a forum post.

I will say that your old assumption that "taxes would be lower there" is probably one of the most ridiculous lies that Canadians (and Americans) are led to believe. It was quite a slap when I moved to the States and realized just how messed up the taxation is down here. Absolutely bonkers, and like you know, it doesn't cover healthcare, so add that in. I think the short story is that whatever taxes we pay for healthcare in Canada is dwarfed by the dollars wasted on military (mis)spending in the US. Some people sure get rich off of it, just not the average taxpayers.

I'm sure you have personal reasons for the move, because pragmatically speaking, unless it comes with an opportunity for increased income (like a higher paying job), what's the point? I miss the courteous and polite Canadian politics.

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