Living and Working in Different Countries – Part 1 of 2

by Mike Holman

I asked frequent commenter Telly if she would consent to doing an interview about her experiences with living in Canada and working in the United States. Not only did she do the interview but she spent a lot of time writing great answers chock full of interesting information. I’ll be conducting a couple more interviews with Telly in the future on other topics. If you have an interesting story and would like to be interviewed then please send me an email.

 

Why do you live in Canada and work in the US – ie how did this happen?

I graduated with a degree in Engineering back in 1999. At the time, there were many job opportunities in Michigan and the exchange rate was a whopping $1.50 or so! A 50% raise for crossing the border each day? Sounded about right to me (and my then boyfriend, now husband). Actually, I would say a majority of my classmates also accepted positions in the US.

The NAFTA agreement allows for a certain list of professions to obtain work in other NAFTA countries pretty easily. Each year I have to renew my TN visa by showing my university degree, a letter from my employer, and pay $60US to the Customs office States-side (my company reimburses me). It’s a relatively easy process that takes about 5-10 minutes.

What is your commute like with respect to crossing the border? Do you get to know the border guards? Do you work from home at all?

My commute isn’t all that bad most days, usually about 30 minutes or so (I live very close to the border). Most of my co-workers in the US actually have substantially longer commutes than I do as I’m usually opposing traffic. The days surrounding Sept. 11 were obviously very chaotic. For a few weeks after 9-11 I did work from home but other than that I do not. On some random mornings the border is messy for no apparent reason. My hours are flexible though so it doesn’t wreak much havoc on my day thankfully. I think as the exchange rate got worse (for commuters like me) more and more people looked to find work back in Canada and the border seems to be much less busy than back in the days of up to $1.60 exchange.

I use a Nexus pass which helps speed things along. The border guards are actually quite friendly and a few of them refer to me by name. 🙂

Are you planning to continue with cross border working? Is it a lot of hassle or no big deal?

I’ve actually been on the lookout for jobs back home but haven’t found anything too exciting as of yet. There are definitely still more opportunities in the US, especially for more technical positions and less manufacturing type positions. Crossing the border isn’t too bad. I think the two biggest issues for me are: 1) taxation, 2) maternity leave (as we’re thinking of starting a family in the near future.

As many of you probably know, the difference between Canada and the US with respect to maternity (or paternity leave) is rather drastic. A new mother, whether through birth or adoption, is only entitled by law (FMLA), to 12 weeks unpaid leave (most employers pay a percentage of pay for the 1st 6 weeks). And actually, it’s remarkable how few people actually take the “entire” 12 weeks. More commonly, women tend to take just 6 weeks. (I’m sure all the new parents are thinking that’s nuts!)

As far as taxation goes, tax rates are generally lower in the US than in Canada. I am required to file in both countries: as a non-resident in the US and as a resident in Canada. A US non-resident is taxed at a higher rate than a resident (go figure) but this is generally still lower than Canadian rates. Basically what happens is that I get a foreign tax credit for taxes that were paid in the US and that is applied to my Canadian taxes. The difference between the rates produces an amount owing in Canada. For example, if my average tax rate is 25% in the US and 30% in Canada then I would get a foreign tax credit for the 25% paid and then owe the CRA the other 5% (further deductions can only come from that extra 5% essentially). This is where I find I can actually lose out by working in the US.

Back in the great exchange days, I never really thought much about registered investing (RRSPs). Bad – I know. I was spending like a recent graduate 🙂, enjoying lots of great vacations, paying off my car, eventually our wedding and (my bit of redemption) aggressively paying off student loans. Now that I’m a little more financially savvy and my husband and I are at point where we can live significantly below our means, I realize the importance of RRSPs. Unfortunately they don’t work well for me. Currently, since I don’t earn any income in Canada (except for a relatively small amount of rental income which there is no withholding for) I can’t receive a tax return…I always owe (based on the difference between the countries tax rates) as CRA has never taxed any of my earnings throughout the year. So basically, I can only contribute enough to my RRSP such that I get to zero owing for the year. That basically amounts to the amount of rental earnings plus the dollar amount difference between the (I’m kind of guessing here) 25% that was paid in the US and the 30% owing in Canada. This usually works out to about $3-4k – not much. So each year I wait till February and make my RRSP contribution for the year – just enough to bring me to zero owing on my Canadian taxes (anything more would be ineffective). Last year this only amounted to about $2000 (the tax rate differentials between Canada & the US seem to be getting closer). So needless to say, my RRSPs are inadequate.

My husband now works in Canada so we’ve taken the approach of maxing out his RRSPs and then using our extra savings to make pre-payments on our mortgage. Very recently though, we’ve decided to start splitting the pre-payments up: 50% will still go to pre-payments and 50% to a non-registered portfolio. We don’t plan to live in our current home for much more than another 2-5 years so we don’t want to be too aggressive in paying off the mortgage lest we think we can afford a lot more home next time around. 😉 This is still being sorted out though as we have a lot of built up contribution room we can use up for my husband’s RRSP.

Check back tomorrow for the exciting conclusion of Telly’s interview!

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{ 5 comments… read them below or add one }

1 guinness416

Correct me if I’m wrong, but I think the maternity situation is worse for companies with less than 50 employees – in those cases, FMLA doesn’t apply (ie, no maternity leave). I have certainly had colleagues who squirreled away vacation and comp time for a couple of years prior to having babies because I’ve always worked for small firms. And yes, still end up back at their desk after shockingly few weeks. That whole issue was certainly high in our minds too when we moved from the US to Canada.

2 Brip Blap

@Guiness416: You are correct. I am always shocked and saddened by seeing (a) female coworkers back at work in as little as 6 weeks after giving birth because they can’t afford unpaid leave and (b) male coworkers who take no time off at all, or maybe a day or two. I took 3 weeks off when my wife gave birth, but it was unpaid and I STILL had to jump through hoops to get FMLA leave.

In the US, I understand the reasoning behind the FMLA exemption for companies with fewer than 50 workers. It would be a burden on a small company. At the same time it just shows where priorities are in the US: certainly not on childcare. Considering the FMLA is a fairly recent development – before that even UNPAID time off wasn’t guaranteed by law – I think we have a looong way to go.

Good interview!

3 Million Dollar Journ

I have a question Telly, when you pay US taxes, do they convert it to CAD before doing the foreign tax credit calculations? If so, then back in the days of 1.50 forex, you must not have owed anything to the cad govt?

4 telly

guiness & brip blap, you’re right about FMLA and companies with less than 50 (or 100?) employees. I work for a large company (>50,000) so that’s not an issue. This weekend I was visiting a friend with a 3 month old and she said she couldn’t even imagine being back at work today.

MDJ, both my gross income and the foreign taxes paid are converted to CAD using the Bank of Canada annual exchange average. So though the foreign tax credit would have been greater back than, so too was my income (in CAD). Because the Canadian tax system has more tiers than the US, the numbers are closer today than they were back in the 1.5 forex days.

Tomorrow’s post will have some more details on tax filings, including the use of an article in the US / CAN tax treaty. A friend of mine that commutes as well actually discovered that he couldn’t use all his tax credits and ended up not owing the CRA a penny (besides OHIP tax) and therefore did not contribute to an RRSP at all.

5 FourPillars

Mr. C – I haven’t told Telly yet but I’m planning to interview her about every aspect of her life, financial and otherwise so I’m sure investing in student housing will pop up somewhere.

Mike

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