California Tax Filing having a Canadian Spouse

Our previous article discussed the idea of California domicile along with the use of California community-property rules to Canadians domiciled from the state. This post is the 2nd installment in your series explaining how California community property laws can impact Canadians. At Cardinal Point, we frequently cope with cross-border couples who maintain cross-border lifestyles on account of career commitments or other obligations. It’s vital that you appreciate how California’s community property lawsapply when one spouse is domiciled in California and the other in Canada. Imagine a wife and husband where the wife lives in Toronto (which is domiciled in Ontario) along with the husband lives in Los Angeles (and it is domiciled in California). Both spouses are dual American and Canadian citizens plus they file a joint U.S. Form 1040 taxes. The husband, Drew, is often a professional hockey player who plays to get a California-based NHL team. Drew’s wife, Amber, can be a top fashion model resides in Toronto. The bride and groom owns homes in Toronto and Los Angeles. Since Amber is primarily in Toronto, New York, London and Paris, she only spends fourteen days a year in Los Angeles together with her husband. Moreover, Amber doesn't earn any California-sourced income. One might feel that Amber doesn't have to file a California income tax return and pay California tax, considering that she doesn’t earn any California income and isn’t domiciled in California.

But as we stated in our previous article, California follows its rules for determining tax residency. Unlike federal tax treatment, an immigrant to California is commonly a California resident from the date of arrival. No 183 physical presence test or green card must determine California residency status. Moreover, since California is very little party on the Canada-U.S. tax treaty, the treaty is just not applicable for reason for determining California residency (similarly, California will not allow a foreign tax credit or even the federal foreign earned income exclusion). Going back to Drew and Amber, because they're filing jointly on their federal return, California demands the same joint filing status on their California return, and they'd pay California tax on their own worldwide income. There's, however, a little-known legal exception that will allow our imaginary couple to file for separately as an alternative to jointly for California tax purposes. To file for separately in California, two criteria has to be met: (1) Amber should not be a resident of California and (2) they must have no California-sourced income, including California wages and income from California real-estate property. With Amber filing separately underneath the exception, she'd still need to file a California 540NR non-resident come back to pay tax on 50% of her husband’s California income. That’s because Drew is domiciled in California. Moreover, she would need to disclose her non-California-sourced income about the California go back to determine her California tax rate. As a result of complexities facing cross-border couples, they are strongly advised to get tax advisers who focus on navigating the canadian and us tax returns. Marc Gedeon is really a CPA (U.S), CPA (Canada) and Tax Attorney at Cardinal Point, a cross-border wealth management organization with offices in america and Canada. Marc concentrates on providing Canada-U.S. cross-border financial, tax, transition, and estate planning services. www.cardinalpointwealth.com This piece is perfect for informational purposes only and cannot be looked at legal or tax advice. Online readers must not solve this info without seeking professional counsel.