Capital Gains for Returning Canadian with L1 Visa

jeff.sunlife · Post by **jeff.sunlife** » Fri Sep 26, 2014 7:19 pm

I am Canadian moved to US mid 2013 with L1 Visa. Filed Income Tax in both US (as US Resident) and Canada in 2013. I also worked first 6 months in US, but have returned to Canada and working in Canada. I lived total of 120 days in 2013 and 140 days in 2014 in US. I plan to spend less than 30 days in US during 2015.

I have a Canadian business which I plan to sell in 2015 and I probably will earn close to $1M. Since I will not be working / leaving in US, will I be paying Capital Gains Tax in US? Does it matter if I sell it in January 2015 or December 2015?

Thanks in advance
Jeff

nelsona · Post by **nelsona** » Fri Sep 26, 2014 10:36 pm

Did you file a departure return for Canada in 2013?
When you say you filed 20143 as a US resident, that means you reported all income for 2013 wordwide on that US return, correct?

As long as you don't sell in a year where you file a full 1040 for the year, you are fine as regards US reporting. You might still file as US resident for entire 2014, so I might hold off until 2015.

jeff.sunlife · Post by **jeff.sunlife** » Sat Sep 27, 2014 9:02 am

Thanks for your reply Nelsona.
In 2013 I filed Canadian portion of my income in Canada and US portion of my income in US.
I will more than likely do the same in 2014 since I have most of my income in Canada and some in US.

I have a house in US which I bought in 2013 and I own my house in Canada for more than 10 years (not sure if it matters). I certainly will not sell my Canadian business in 2014. I was concerned that if I sold early in 2015, I would still need to pay Capital Gains as IRS may not calculate my residency criteria on calendar year.

nelsona · Post by **nelsona** » Sat Sep 27, 2014 9:13 am

You cannot file that way in 2013 without specifying a departure date on your Cdn return, and you cannot file that way in US unless you file a 1040NR and prove you are still resident in Canada.

So, you probably need to fix both return at this point.

From what you say, you remain a Cdn resident and need to report WORLD income for 2013 and 2014, and you need to for 2013 file a 1040NR, with no standard deduction.

How did you conclude you could file however you wished?

jeff.sunlife · Post by **jeff.sunlife** » Sat Sep 27, 2014 2:15 pm

In 2013 I filed 1040 (resident) and included only US portion of my income in US. In Canada, I filed and reported US income and sent 1040 and taxes paid as a result to CRA.

In 2014 I will have to file it as US resident also since I lived in US for more than 183 days during the last 3 years and had a car, State Drivers licence and house.

In 2015, I will stay away from US so will not be living there for more than 30 days so will not be considered resident, but since I have investments (stocks) in US banks and house I will file 2015 as NRA. If in 2015, if I sell my Canadian business, will I need to pay Capital Gains in US or only in Canada?

nelsona · Post by **nelsona** » Sat Sep 27, 2014 9:17 pm

So, your 1040 was filed incorrectly.
In order to file a 1040, you need to report world income for entire year. You filed what was know as dual-status, which prevents standard deduction. You should have just filed 1040NR, reporting only US income. You could probably do that for 2013, since you likely did not meet the day requirement for resident.

But for 2014, that is probably not the case, and will have to file a 1040 with all world income.

You are likely fine for Canada, because of ties. but CRA would not accept this for much longer and would in essence push you out. But you imminent return makes you OK.

But you probably should fix your US tax return for 2013, and thus fix the US credits on your Cdn return.

Again, any reason you made this decision to file this way, without any guidance that allowed it?

jeff.sunlife · Post by **jeff.sunlife** » Sun Sep 28, 2014 12:32 am

Thanks for so valuable information Nelson
I had multiple accountants advice me (one in US who did my US taxes and then another one in Canada did my Canadian taxes). I do own other companies on bot side of the border so I trusted them blindly! I will have to file 2014 US on my world income which I have no choice (seems like).

Back to my Capital Gains issue:
I am living exclusively in Canada and almost zero income in US since July 2014 (and will continue to live in Canada all 2015). If I sell my Canadian business in 2015 (example sell it in March 2015), will I need to pay Capital Gains in US?

nelsona · Post by **nelsona** » Sun Sep 28, 2014 8:29 am

[quote="jeff.sunlife"]Thanks for so valuable information Nelson
I am living exclusively in Canada and almost zero income in US since July 2014 (and will continue to live in Canada all 2015). If I sell my Canadian business in 2015 (example sell it in March 2015), will I need to pay Capital Gains in US?[/quote]

I already answered that.

So go back to your accts and have them fix your returns. In future you should probably use 1 firm for all filings, as one hand is not talking to the other right now.