Jennifer is an engineer who has been working at a Vancouver firm part-time while caring for her ill father. But her dad recently died and she’s ready for a full-time position. At a convention, Jennifer strikes up a conversation with the CEO of an engineering company in Portland, Ore. The CEO is so impressed that he offers Jennifer a one-year, full-time contract with the chance of renewal. To work across the border, however, Jennifer must apply for TN status. She’s heard horror stories of Canadians literally stranded at the border with their belongings because U.S. Customs rejected them for improper paperwork. Meanwhile, Jennifer’s American boss is too busy building his company to help her apply. What must Jennifer do to get to Portland, and what will her tax responsibilities be once she gets there?
Who do you call?
Immigration lawyers and accountants.
What they say
There are 65 professions listed under NAFTA as eligible for TN Status. Most are white collar, like doctor and lawyer. Sometimes, the U.S. employer is actively involved in the process, sometimes not. Most of the time, the employer pays for the TN application fees and travel costs to the U.S.
To apply, Jennifer must submit a carefully prepared letter on company letterhead [proving she has] a job offer in a professional capacity, supported by appropriate documents [such as her degree]. The letter should briefly describe the company, the position to be filled and her credentials. The job offer has to come from a company that the person does not own. Jennifer has to have a bachelor’s degree or better in engineering or a P.Eng certificate.
The employer has to qualify her as an engineer and describe the position. She has to come [to the U.S.] in her professional capacity (and they don’t like people being managers). She has to be employed as an engineer to engage in professional engineering services for an engineering company. To prove she’s Canadian, she takes her passport with her to have the matter adjudicated or, if she has it adjudicated at an inland processing centre, she sends in a copy of the picture page of her passport.
It gets a little complicated here. The entry process is idiosyncratic depending on port of entry [and] varies more on individual adjudicators. If she’s processing at the border, many border crossings want to see her original diploma. They won’t accept a photocopy [but] she should bring the photocopy too. They’ll compare the original to the photocopy and keep the photocopy in their files.
Jennifer has two ways to do the application, depending on time:
- If she has to start the position immediately, she takes the application with her when she goes to an international airport or to the border en route to take the job in Portland. She actually has to be en route to take the position [in the U.S.]. When she gets to the port or airport, the officer at the counter adjudicates her case. At the border or airport, there’s a US$50 fee and, if it’s approved, there’s an additional US$6 she pays at [a] land border crossing (not airports). [If she’s rejected,] Jennifer can’t enter the U.S. until she has her TN in hand. This has happened to many people. (If she happens to be visiting the U.S. before she’s en route to the job, it may be possible to have the TN adjudicated at that time. This is a new development, and the parameters are not yet known.)
- If Jennifer has appropriate lead time, the application can also be submitted to the Vermont Service Center. In addition to the letter and the attachments, she fills out Form I-129 and TN Supplement. It usually takes 90 days. The filing fee is US$325. She can pay an additional US$1,225 to turn it around in 15 business days.
Engineer [offers] are pretty straightforward letters, so I would have no hesitation sending her to a local border crossing or international airport. She has a 99.9% chance of getting her work permit, [as do] accountants and lawyers.
Tip: If the [company only needs] her for one year, she’d get one-year status and, if the contract is renewed, she’d have to come back and get another TN. [To save time and trouble] the letter should just say, “We request TN Status for her for three years” [the maximum length of the status].
[At the adjudication], she should know her letter forward and backward. Some adjudicators look at the letter very carefully, and if they think it’s incomplete, they ask questions like, “What are your job duties?”; “Where’s you engineering degree from?”
As for Jennifer’s tax concerns, once you’ve determined residency, you determine which country has the right to tax your worldwide income. Whether she’s a resident of the U.S., her U.S.-source earnings will still be taxable in the U.S. because she has a job there.
To avoid double taxation, there is a tax treaty between the U.S. and Canada [that] says you’re a resident of the country where your permanent home is. A permanent home can be owned or rented, but excludes a hotel or a short-term rental. If there’s permanent homes in both countries, you’re resident of the country where your personal and economic ties are stronger.
If Jennifer remains a resident of Canada (has a permanent home there and goes back to visit family) [and] her primary income is from her job in the U.S., she’d file a U.S. return and report that same income on a Canadian return, converted into Canadian dollars. She would receive a foreign tax credit for a portion or all of the American taxes paid.
Say her marginal rate in Canada is 50%, and 30% in the U.S. In theory, she should be paying the difference to CRA of 20%. She wouldn’t be paying 50% plus 30% because that would be double taxation. But, if she sells her home in Canada or rents it to a third party, she no longer has a permanent home here; she’s a permanent U.S. resident subject to U.S. taxes.
If Jennifer becomes a non-resident of Canada, she has to file a Departure Tax Return. Form T1161 should be attached for any assets remaining in Canada having an aggregate value of more than $25,000, excluding cash and RRSPs. She would then look at any assets that have accrued gains, because she would [be deemed to have] disposed of her assets at market value at the time of departure (excluding real estate, RRSPs and TFSAs). Half the gain is taxable at her marginal rate. If she’s wealthy and has significant assets that have gone up in value, it can be a very big tax cost to become a non-resident of Canada. She’d be subject to a departure tax on shares of non-registered investments. If so, she could consider selling them. Why not realize the gains and get the cash for it?
Tip: If Jennifer has gains in her RRSP, she could sell the investments and immediately reacquire them just before leaving for the U.S. That’s a step up in her cost basis. When making an RRSP withdrawal in the U.S., [the accrued gains after moving to the U.S. are] taxable. The gains are determined by looking at the cost amount of the investments in the RRSP and subtracting that from the selling price.
Also, stop contributing to your TFSA if you become a non-resident. There’s a significant penalty for contributing after you’ve become a non-resident: 1% per month of the contributions made.
by Allan Tong, a Toronto-based financial journalist.