I worked in Canada and America this year, how do I determine my country of residence?

by margento | May 21, 2021

People who earn income from more than one country often find their taxes complicated by layers of red tape from both countries. Even though the United States and Canada have very friendly economic terms and a historically porous business border, each country still expects earners to fully adhere to their tax expectations. 

Multi-country taxation paperwork can be quite daunting, and most people and businesses may benefit from hiring professionals to cut through the red tape for them. This is especially true if one of those countries is the United States, whose tax system is the most complex in the world.

Determine your country of residence: Canada’s rules

If you are a Canadian citizen, but earned income in the United States, your initial return may likely show that you have to pay taxes for your earnings in both countries. Luckily, the Canada-United State Income Tax Convention Fifth Protocol (2008) might excuse you from paying some or all of the taxes to the United States, but does not exempt you from filing a tax return in a timely manner under US law.

In this case, the details of your taxes may likely hinge on residency. If you resided in Canada for more than half of the year (183 days or more) you may qualify for relief. This generally means that in any place where similar taxes apply to your earnings, you may have to pay the Canadian tax and be exempt from the corresponding United States tax.

A Canadian citizen earning income while employed in the United States by a US company might be eligible for relief from Canadian taxes. In that case, the individual may likely be eligible to deduct the full amount of the taxes actually paid to the US whether through deductions or payments. Similarly, deductions for pension plans are also available, if they substantively match similar plans available under Canadian law.

Determine your country of residence: United States’ rules

The United States applies a more complicated residency rule. A person who was in the United States for less than 183 days in one year might still qualify as a resident, because of the residency formula that counts days from surrounding years proportionally as follows:

            Days of residency in the current year are counted as full days

            Days of residency in the preceding year are counted as ⅓ days

            Days of residency in the second precedent year are counted as ⅙ days.

If the total after this calculation is 183 or higher, you are considered to have residency in the United States.

So if you were in the United States 60 days for each of the past three years, your calculation would be:

            Current year: 60

            Preceding year: 60/3 = 20

            Second preceding year: 60/6 = 10

            Total days = 90 (not a resident)

But if you were in the United States 126 days for each of the previous three years, your calculation would be:

Current year: 126

            Preceding year: 126/3 = 42

            Second preceding year: 126/6 = 21

            Total days = 191 (resident)

Of course, it is unlikely that each person’s annual total is the same, and these examples are meant only to serve to explain how the formula works.

Either way …

Whichever country you determine to be your country of residence, you are still obligated to fill out the United States tax forms for income earned there and submit it by April 15th.

However, your residency and citizenship, and the application of the Canada-United State Income Tax Convention Fifth Protocol (2008) may determine if you qualify for tax relief from those taxes that overlap. In those cases, you owe the country of residence, and may be exempt from the same taxes in the other country (even if you are a citizen of that country.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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