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1 RESIDENCY DEMONSTRATION PROBLEM Leona and her husband Howard, professors at a Canadian university, filed Canadian tax returns as residents for many years. Because of a unique opportunity to work with a team of renowned American researchers, they decided to accept an offer to move to the University of California at Berkeley for several years. While at Berkeley they will receive a generous salary, plus a research grant equal to the research expenditures they incur. Because they obtained a leave of absence from their university, they decided to rent their Canadian home during their absence and rent an apartment in Berkeley. Prior to their departure they came to your office for tax advice. Leona and Howard left Canada on May 1, 20XX to take up the position at Berkeley. Required: Outline the residency issues you would have discussed with Leona and Howard during their visit to your office. Suggested Solution The principal tax considerations Leona and Howard will be concerned with are: (a) Will they be considered tax residents of Canada, the United States, or both countries after their departure? (b) To which country(s) will they file tax returns? In which year(s)? (c) What income has to be reported in Canada? the U.S.? (d) If they have to file in both countries, will they be taxed twice on the same income? (e) If so, is there tax relief to reduce the impact of the double taxation? (f) Is there anything they can do before leaving (after arriving in the United States) to reduce their potential income taxes? (g) What will happen when (if) they return to Canada? Leona and Howard should consult professional advice well before their intended departure date. The following should be discussed with them before their departure: Canadian Tax Concerns 1. Their residency status will be determined on a year-by-year basis. 2. They will be required to file a Canadian tax return and report their world income earned during any year(s) they are considered residents of Canada. Should they terminate or assume Canadian residency during a given year, they will be considered
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