US v. Canada on taxes
May 15th 2014, 2:12 pm
#16
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Re: US v. Canada on taxes
This thread: http://britishexpats.com/forum/showt...6#post11258636 encouraged me to do my annual comparison of "how much tax would I pay if I lived in the US". Because basically the winter makes me think of moving then I do this comparison and I no longer want to. 
Anyway, it is a very illuminating comparison because when I work through it, two things become immediately apparent - the US has way higher payroll taxes and has way lower thresholds for pension contribution, correct me if I'm wrong but in the US the maximum IRA contribution is $5,500 and in Canada it's up above $20,000 (a proportion of your income up to that).
You can itemize your deductions in the US and there is the mortgage tax credit but you've got to be going some to make up the difference in the pension tax credit and the payroll taxes.
However - if you live off of investment income, you probably aren't contributing to a pension and there is no payroll tax, and if you live in a State with no income tax then the marginal rates are lower in the US than anywhere in Canada. So on that basis, you would be better off, bearing in mind though that CGT in Canada is 50% of the income tax rate whereas the short-term CGT rate in the US is the income tax rate (so plan carefully in other words).
If you're self-employed though you get absolutely hammered in the US compared to Canada because you've got to pay both halves of FICA and in Canada although you have to pay both halves of CPP, you're exempt from paying EI (which is federal, unlike the US). And CPP is at a massively lower rate than FICA.
The downside being of course that Social Security pays out way more than CPP does.
Canada also has no estate tax, in case you're thinking of dying.
So what I take from this is that if you're a rich dude who has investment income you're better off in the US but if you're a working stiff you're better off in Canada. Provided you remember to contribute to your pension.
Anyway, it is a very illuminating comparison because when I work through it, two things become immediately apparent - the US has way higher payroll taxes and has way lower thresholds for pension contribution, correct me if I'm wrong but in the US the maximum IRA contribution is $5,500 and in Canada it's up above $20,000 (a proportion of your income up to that).
You can itemize your deductions in the US and there is the mortgage tax credit but you've got to be going some to make up the difference in the pension tax credit and the payroll taxes.
However - if you live off of investment income, you probably aren't contributing to a pension and there is no payroll tax, and if you live in a State with no income tax then the marginal rates are lower in the US than anywhere in Canada. So on that basis, you would be better off, bearing in mind though that CGT in Canada is 50% of the income tax rate whereas the short-term CGT rate in the US is the income tax rate (so plan carefully in other words).
If you're self-employed though you get absolutely hammered in the US compared to Canada because you've got to pay both halves of FICA and in Canada although you have to pay both halves of CPP, you're exempt from paying EI (which is federal, unlike the US). And CPP is at a massively lower rate than FICA.
The downside being of course that Social Security pays out way more than CPP does.
Canada also has no estate tax, in case you're thinking of dying.
So what I take from this is that if you're a rich dude who has investment income you're better off in the US but if you're a working stiff you're better off in Canada. Provided you remember to contribute to your pension.
May 16th 2014, 8:28 am
#17
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Re: US v. Canada on taxes
Also, many US employers match employee 401k contributions to some degree - free money.
I would pay much more for gas, restaurants, beer, electronic goods and a host of other things in Canada.
Although if you put in Baltimore, it's less.
Also sales tax is higher in Canada.
You'd have a hard time convincing me that I'd be financially better off in Canada. I lived and worked in the GTA for 7 years and I'm much better off financially here in the greater Washington DC area (not exactly one of the cheaper areas in the US).
May 16th 2014, 2:02 pm
#18
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Re: US v. Canada on taxes
Now I have no investments, no retirement plans of any sort, so its straight income from employment, but looking at an old pay stub from 2010 in California, the withholding amounts are basically the same, and my refunds in both countries is basically the same at around 300 or so.
Overall because medical care is cheaper in Canada, I am financially better off in Canada.
Overall because medical care is cheaper in Canada, I am financially better off in Canada.
May 16th 2014, 4:10 pm
#19
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Re: US v. Canada on taxes
No idea what an RRSP is...presumably something in Canada? Not intending ever moving there, so can't be arsed to google it
Whats this thread aiming at - is someone trying to weigh the pro's and cons of either country for a potential move, or is it just a neh neh neh neeeh ne thread?
May 16th 2014, 9:36 pm
#20
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Re: US v. Canada on taxes
Not just the SEP IRA - same for other IRA's as well, and 401k's too.
No idea what an RRSP is...presumably something in Canada? Not intending ever moving there, so can't be arsed to google it Whats this thread aiming at - is someone trying to weigh the pro's and cons of either country for a potential move, or is it just a neh neh neh neeeh ne thread?
No idea what an RRSP is...presumably something in Canada? Not intending ever moving there, so can't be arsed to google it
Whats this thread aiming at - is someone trying to weigh the pro's and cons of either country for a potential move, or is it just a neh neh neh neeeh ne thread?http://www.cra-arc.gc.ca/tx/ndvdls/t...rrsps-eng.html
US have an option to buy health insurance or not to buy health insurance. If you are healthy and want to go to doctor only once a year then US (no health insurance option) is better. There are more job opportunities,more investment options. Low real estate interest rates and some places in USA have low GST.
I spent 24 years in the US, most in California, and financially is makes more sense to be in Canada for me, as I am also not willing to live in places like Texas or the south where the lower cost of living tends to be.
I was only speaking for myself, and Canada offers me more for employment through higher wages, and less costs for healthcare which is something I need and cannot go without and would be a financial burden in the US.
I don't care about real estate, my income is not sufficient in either country to buy real estate so its of no concern or interest for me.
May 17th 2014, 9:01 am
#21
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Re: US v. Canada on taxes
RRSP is a Registered Retirement Savings Plan.
http://www.cra-arc.gc.ca/tx/ndvdls/t...rrsps-eng.html
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http://www.cra-arc.gc.ca/tx/ndvdls/t...rrsps-eng.html
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Not really sure why I wandered into this thread.......
May 18th 2014, 1:27 pm
#22
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Re: US v. Canada on taxes
http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html
Last edited by JAJ; May 18th 2014 at 1:37 pm.
May 22nd 2014, 10:49 am
#23
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Re: US v. Canada on taxes
Yes, the point I was getting at is that there is capital gains generally speaking on disposal of capital assets, but if you dispose of those assets then they're not "deemed" to be disposed of when you die, so you've avoided that problem at least. Capital gains is an issue in either country so no real net difference there although the rates are somewhat different.
The idea behind deemed dispositions is that you cannot avoid CGT through death or emigration, the US has a similar method of doing it for people who give up citizenship iirc.
Given that your residence is usually your principal asset that would be subject to CGT, but is exempt, and so are RRSPs and RRIFs, then it's not really a major issue for most Canadians.
Admittedly estate tax isn't either as you have to have a net worth of more than $5.25 million (or twice that if married).
No province though has an estate tax, but some States do.
The idea behind deemed dispositions is that you cannot avoid CGT through death or emigration, the US has a similar method of doing it for people who give up citizenship iirc.
Given that your residence is usually your principal asset that would be subject to CGT, but is exempt, and so are RRSPs and RRIFs, then it's not really a major issue for most Canadians.
Admittedly estate tax isn't either as you have to have a net worth of more than $5.25 million (or twice that if married).
No province though has an estate tax, but some States do.
May 22nd 2014, 10:52 am
#24
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Re: US v. Canada on taxes
May 22nd 2014, 8:38 pm
#25
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Re: US v. Canada on taxes
Yes, the point I was getting at is that there is capital gains generally speaking on disposal of capital assets, but if you dispose of those assets then they're not "deemed" to be disposed of when you die, so you've avoided that problem at least. Capital gains is an issue in either country so no real net difference there although the rates are somewhat different.
The idea behind deemed dispositions is that you cannot avoid CGT through death or emigration, the US has a similar method of doing it for people who give up citizenship iirc.
Given that your residence is usually your principal asset that would be subject to CGT, but is exempt, and so are RRSPs and RRIFs, then it's not really a major issue for most Canadians.
Admittedly estate tax isn't either as you have to have a net worth of more than $5.25 million (or twice that if married).
No province though has an estate tax, but some States do.
The idea behind deemed dispositions is that you cannot avoid CGT through death or emigration, the US has a similar method of doing it for people who give up citizenship iirc.
Given that your residence is usually your principal asset that would be subject to CGT, but is exempt, and so are RRSPs and RRIFs, then it's not really a major issue for most Canadians.
Admittedly estate tax isn't either as you have to have a net worth of more than $5.25 million (or twice that if married).
No province though has an estate tax, but some States do.
In the U.S., if a person holds onto capital assets until death, then as far as I understand, any unrealized capital gains are not assessed to income. So this can be an effective tax planning strategy in the U.S. Especially for those whose estates are below the Federal estate tax threshold.
May 23rd 2014, 6:44 am
#26
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Re: US v. Canada on taxes
Well it's all about tax planning, it's just a different strategy. Most people in either country face no little or no tax on death. Canadians favour buying homes more than Americans apparently so the principle residence is exempt.
Investment strategy is quite an interesting topic because RRSPs are not subject to a penalty on early withdrawal, just income taxes, also the US treats short-term capital gains as income, Canada does not (or technically speaking all capital gains are treated as income but at a 50% valuation).
So yes, capital gains tax may apply in more situations than it does in the US but the rate can be significantly lower, depending on your investment strategy.
The strategy in Canada obviously is to dispose of everything that isn't exempt.
Investment strategy is quite an interesting topic because RRSPs are not subject to a penalty on early withdrawal, just income taxes, also the US treats short-term capital gains as income, Canada does not (or technically speaking all capital gains are treated as income but at a 50% valuation).
So yes, capital gains tax may apply in more situations than it does in the US but the rate can be significantly lower, depending on your investment strategy.
The strategy in Canada obviously is to dispose of everything that isn't exempt.
May 25th 2014, 6:07 am
#27
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Re: US v. Canada on taxes
Which I agreed with later on - but there's a massive difference in payroll taxes.
Not a fair comparison because I assume most don't and like I said there are a blizzard of pension schemes and whatnot to muddy the water. An RRSP doesn't have as many restrictions as a 401(k), for example.
Strangely we were just having this discussion in the Canada section and someone mentioned this website: http://www.numbeo.com/cost-of-living...&city2=Calgary
Although if you put in Baltimore, it's less.
Depends where you are, it's not consistent across either the US or Canada. In Alberta for example we only have 5% GST, but it applies to services and certain food items which are usually exempt in the US - but on the other hand, the rate is often higher than 5% in the US.
Toronto v. DC
Not a fair comparison because I assume most don't and like I said there are a blizzard of pension schemes and whatnot to muddy the water. An RRSP doesn't have as many restrictions as a 401(k), for example.
Strangely we were just having this discussion in the Canada section and someone mentioned this website: http://www.numbeo.com/cost-of-living...&city2=Calgary
Although if you put in Baltimore, it's less.
Depends where you are, it's not consistent across either the US or Canada. In Alberta for example we only have 5% GST, but it applies to services and certain food items which are usually exempt in the US - but on the other hand, the rate is often higher than 5% in the US.
Toronto v. DC
I spend a lot of time in Canada. My daughter lives in London, ON and I often go grocery shopping with her. The prices are just ridiculous compared to my local store. When I visit her, she asks me to bring up various products from my local pharmacy in the US such as vitamins, pain meds, first aid stuff, etc because it all costs so much more in Canada. I often shop at Best Buy and the London, ON store has much higher prices than my local store here in Maryland - again, that's even before the higher sales tax is added. So I regularly bring up Best Buy purchases for her as well. Same thing with IKEA, Target, etc. I'm struggling to think of a single thing that is cheaper in Canada. I've certainly never asked her to buy something for me in Canada because of lower cost!
Health care definitely costs me more in the US but then I don't have the access issues (e.g. referrals, waiting lists, provider choice, etc) that I would have in Canada. College tuition is higher in the US but my daughter is a Canadian citizen paying domestic tuition at Western. The other kids will go to "in state", public universities in the US if they don't go to college in Canada.
However, I also get a tax deduction on mortgage interest, property taxes, and college savings plans contributions. Finally, my salary in the US is much higher than it would be in Canada so, overall, I'm confident that I'm financially better off in the US.
May 27th 2014, 11:48 am
#28
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Re: US v. Canada on taxes
To be honest I thought the same thing but 681 contributors to that website apparently disagree with us!
It's not just about retail prices of a few things (and Best Buy is not competitive in Canada), it's also about rent, restaurants, etc. If you look at the list then fresh produce is listed as cheaper in Toronto. Rent and public transport are listed as being more in DC, that I believe.
It's not just about retail prices of a few things (and Best Buy is not competitive in Canada), it's also about rent, restaurants, etc. If you look at the list then fresh produce is listed as cheaper in Toronto. Rent and public transport are listed as being more in DC, that I believe.
May 27th 2014, 12:24 pm
#29
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Re: US v. Canada on taxes
Never had access issues, anytime a referral is needed, one has been done.
Now for now urgent/non-emergency issues, there have been waits, but I don't mind them, a small wait for something that isn't life threatening isn't an issue for me.
I've yet to experience any sort of wait when it was an emergency or very urgent health issue.
I'd change some wait times to paying a fortune for health insurance and possible end up bankrupt due to medical bills. You cannot assume you will always have the means or insurance to cover all future health issues.
May 27th 2014, 3:26 pm
#30
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Re: US v. Canada on taxes
That is definitely the biggest risk about the US system. I love the quality of US healthcare (if you have access to it) but I absolutely loathe the US health insurance system. To be honest, if I didn't have coverage, I'd probably move to Canada or the UK.
