Hello everyone,
I'm a Canadian citizen preparing to move with my wife to California in November on a TN Visa.
My goal is to prepare for this move so that my future taxes are less of a headache. My main concerns are with the US side of taxes since I've never filed with the IRS before. I will definitely find a professional to prepare my dual status return and most likely future returns as well, but I just want to know the details for myself in case I don't find a complete expert on cross-border issues.
My plan so far is to:
1. Collapse our TFSAs and RRSPs (our RRSPs don't have a lot in them, and since we're going to California where it's not recognized, I figured it might be easier to close them early)
2. Transfer most of our money using Norbert's Gambit so that we have less than $10k remaining in bank accounts in Canada.
What this will mean on the Canadian side is that since the only things generating income is tax interest on bank accounts, there is no withholding and there is nothing to file with the CRA.
By having less than $10k total in Canada, this will allow me to avoid filing a FBAR in US.
Hopefully everything I've said makes sense so far.
I have a couple of questions:
1. Will I have to file anything on the US side to report the interest income in Canada? I might have seem something about Canadian bank interest being exempt, but not sure.
2. Would a GIC count as earning interest and hence be treated similar to bank interest? What about a market-linked GIC? If so, it seems a bit better than parking money in a savings account.
3. My reluctance to keep the RRSP is simply due to the fact that I don't know how much more complex it would be to file in the US side. If it's not too complex, I do have contribution room that I can use. However, this would mean my foreign assets would total over $10k and I would have to file a FBAR as well, which I'm also unsure how difficult it would be to file. How much paperwork is involved with each of these?
Any help or tips would be appreciated.
Thanks for your time.
Canadian Citizen preparing to move to California on TN Visa
Moderator: Mark T Serbinski CA CPA
First off, it is unlikely that you will file a dual status return. You will have spent so few days in US that you will simply file a 1040NR for any US income you earn this year. You will still file a departure return for Canada, and in 2017 you will file a normal 1040 which can easily be done with off-the-shelf software -- if you take care of some issues by dec 31, 2016. Save yourself the $3000 prep fees.
This also helps in that it allows you to take care of any Cdn issues that would be complicated if you were considered a US resident any time in 2016.
1. Collapse the TFSA anytime before Dec 31. As I said, you will not be considered US resident this year. I would wait to close RRSP until after you leave, so that you only pay 25% tax, rather than your Cdn marginal rate. Again. there will be no tax to pay in US.
2. As you wish. Just do this before dec 31 if your goal is to avoids FBAR next year.
1. Cdn interst paid to you while US resident is of course taxable in US. It is not taxable in Canada.
2. These are all interest.
3. FBAR is simple so do not make any decisions based solely on that. If you want to keep cash in Canada don't worry about FBAR, which is a 10 minute file. You want to get rid of small RRSP simply because of the bother to deal with California (not IRS) taxes on this.
As to using your RRSP room: if you are in a high Cdn/prov bracket (ie. more than 25%), you could simply contribute to a cash RRSP this year (just to reduce your taxes on your departure return) and then turn around and cash out everything as soon as you are in US. Not much point in keeping a small RRSP in Canada while living in California. Invest in California.
This also helps in that it allows you to take care of any Cdn issues that would be complicated if you were considered a US resident any time in 2016.
1. Collapse the TFSA anytime before Dec 31. As I said, you will not be considered US resident this year. I would wait to close RRSP until after you leave, so that you only pay 25% tax, rather than your Cdn marginal rate. Again. there will be no tax to pay in US.
2. As you wish. Just do this before dec 31 if your goal is to avoids FBAR next year.
1. Cdn interst paid to you while US resident is of course taxable in US. It is not taxable in Canada.
2. These are all interest.
3. FBAR is simple so do not make any decisions based solely on that. If you want to keep cash in Canada don't worry about FBAR, which is a 10 minute file. You want to get rid of small RRSP simply because of the bother to deal with California (not IRS) taxes on this.
As to using your RRSP room: if you are in a high Cdn/prov bracket (ie. more than 25%), you could simply contribute to a cash RRSP this year (just to reduce your taxes on your departure return) and then turn around and cash out everything as soon as you are in US. Not much point in keeping a small RRSP in Canada while living in California. Invest in California.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks, for the quick reply. That really helps.
Took a look at FBAR and it really is just listing accounts and doing a simple currency exchange calculation so I won't be too concerned with that.
I have an RRSP under my wife's name and this year she didn't have any income. Since we are in Ontario, even if we took out her entire RRSP, her marginal tax rate would be under the $45k bracket. In this case, it would be better to close hers now instead correct?
Things make a lot of sense now. One quick clarification, once I have physically moved to the US, I am at that point in time a non-resident of Canada, and hence if I close my RRSP (after notifying the bank that I am a non-resident), it would be taxed at the 25% rate correct?
Thanks again.
Took a look at FBAR and it really is just listing accounts and doing a simple currency exchange calculation so I won't be too concerned with that.
I have an RRSP under my wife's name and this year she didn't have any income. Since we are in Ontario, even if we took out her entire RRSP, her marginal tax rate would be under the $45k bracket. In this case, it would be better to close hers now instead correct?
Things make a lot of sense now. One quick clarification, once I have physically moved to the US, I am at that point in time a non-resident of Canada, and hence if I close my RRSP (after notifying the bank that I am a non-resident), it would be taxed at the 25% rate correct?
Thanks again.
As I said, you would wait if the marginal rate was more than 25%. To accurately assess this though, you not only have to consider that tax she would pay, but alos any tax credits that YOU would lose given that she now would have income. You probabl yare benefitting by being able to transfer her credits to you, which you would no doubt lose by adding that income in her name. and that is if it is actually HER RRSP, if it is a spousal RRSP, the money would be taxed in YOUR name (in which case you would obviously wait). Spousal RRSP would be taxed in hHER name once she is non-resident.
Easy enough to determine. Just run some scenarios in tax software (last years is good enough) where you add all the RRSP to her income and see how this affects BOTH your taxes. You may indeed find that you can take it all as a resident more cheaply than 25% or there may be some break-even point.
Once you no longer have any primary residential ties in Canada, you will be non-resident, subject to 25% withholding as final payment on the RRSP.
Just as an aside, if she isn't going to work next year, she can take probably 15-20K with almost no tax, by the 217 election method. So you might want to leave that much or more until January.
Easy enough to determine. Just run some scenarios in tax software (last years is good enough) where you add all the RRSP to her income and see how this affects BOTH your taxes. You may indeed find that you can take it all as a resident more cheaply than 25% or there may be some break-even point.
Once you no longer have any primary residential ties in Canada, you will be non-resident, subject to 25% withholding as final payment on the RRSP.
Just as an aside, if she isn't going to work next year, she can take probably 15-20K with almost no tax, by the 217 election method. So you might want to leave that much or more until January.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Hi nelsona, I was reading this thread as I am in a similar situation, but I am moving on Oct1st. Will not be a considered a U.S. resident because of my short time there this year as well? Where can I get more information on this? All my prep was based on becoming a US resident and making sure i'm not considered a Canadian resident from Oct 1st.
the two issues are not necessarily related. You will be a US resident (and a Cdn non-resident) on the day you move 9just like our original poster).
It is simply that because you will not be resident suffcinet days to pass SPT, you CAN file a 1040NR for 2016, which for the short period you will work in US (and thus relatively low income you will earn) you will not have to file a whole bunch of foreign reporting, neither will you need to file dual status (or elect to file full-year 1040). the minor chance that this will incur more US tax is far outweighed by avoiding the foreign reporting issues, PARTICULARLY IF YOU RID YOURSELF OF THE "OFFENDING" ACCTS before Dec 31.
It is simply that because you will not be resident suffcinet days to pass SPT, you CAN file a 1040NR for 2016, which for the short period you will work in US (and thus relatively low income you will earn) you will not have to file a whole bunch of foreign reporting, neither will you need to file dual status (or elect to file full-year 1040). the minor chance that this will incur more US tax is far outweighed by avoiding the foreign reporting issues, PARTICULARLY IF YOU RID YOURSELF OF THE "OFFENDING" ACCTS before Dec 31.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
I definitely am getting the 2 mixed up. If it's not too much to ask if you could clarify that for me or point me to the right place for reading.
From my understanding form 1040NR is for nonresident alien. But from what you are saying I do become a US resident on the day i move to the US?
I actually got rid of all my offending accounts already such as margin and TFSA (for simplicity). I just kept an RRSP and normal bank accounts. My goal was to have everything setup for clean taxes on the date of October 1st which is when I move.
More out of curiosity since I took care of most things, but if I am a Canadian a non resident as of October 1st, how come I have until the end of the year to settle all my accounts?
Also what is the impact on the Canadian side based on me filling a 1040NR for 2016 in the US now, if any? I was planing on filing a departure tax and normal income tax for year 2016, both of which I know I still have to do.
thanks again!
From my understanding form 1040NR is for nonresident alien. But from what you are saying I do become a US resident on the day i move to the US?
I actually got rid of all my offending accounts already such as margin and TFSA (for simplicity). I just kept an RRSP and normal bank accounts. My goal was to have everything setup for clean taxes on the date of October 1st which is when I move.
More out of curiosity since I took care of most things, but if I am a Canadian a non resident as of October 1st, how come I have until the end of the year to settle all my accounts?
Also what is the impact on the Canadian side based on me filling a 1040NR for 2016 in the US now, if any? I was planing on filing a departure tax and normal income tax for year 2016, both of which I know I still have to do.
thanks again!
If you look at IRS Pub 519 for example, it describes the requirements that someone arriving in the US (first year) needs to file a dual-status 1040 vs a 1040NR. If you do not meet the requirements to file a dual-status 1040 which is either the SPT test or the Green card test, you simply can file a 1040NR. That is with regards to your US filing.
Now to the issue of Cdn non-residency and departure date, as soon as you no longer have primary ties in Canada, and you have primary ties in another country (particularly a treaty country), you are non-resident of Canada. It would only be in cases where you have primary Cdn ties still existing that how you file in your new country *could" affect the CRA's determination of your status. This is not the case in our original poster's case. In ambiguous cases, it may help to be able to point to the fact that you treated yourself as a resident for tax purposes in the other country (in the case of US it would be filing a dual status return with the same (or earlier) residency starting date, as your Cdn departure date.
In the past, there was rarely any harm in filing dual-status or even full-year resident when a 1040NR was sufficient. 1040NR general yields a higher taxrate that a 1040 (which is opposite of the Cdn experience). But, while a 1040 might save you *some* tax, in *some* instances (usually when one arrives in US in July/August), the since the regime of excessive burden of foreign account and holdings reporting has arrives, 1040 NEVER in my opinion outweighs the simplicity 1040NR if that option is available, which it would be in our original posters case, and, I assume, you as well.
Does this result perhaps in a period where from a tax filing point of you (not ta residency point of view) that one can file as if not resident of either country for a period at the end of the year? Yes. That a function of Canada's residency-based tax system vs. IRS citizenship-based tax system. So be it. It can just as easily occur that one be required to file as if a resident of BOTH countries for a period during the year. So be it.
Now to the issue of Cdn non-residency and departure date, as soon as you no longer have primary ties in Canada, and you have primary ties in another country (particularly a treaty country), you are non-resident of Canada. It would only be in cases where you have primary Cdn ties still existing that how you file in your new country *could" affect the CRA's determination of your status. This is not the case in our original poster's case. In ambiguous cases, it may help to be able to point to the fact that you treated yourself as a resident for tax purposes in the other country (in the case of US it would be filing a dual status return with the same (or earlier) residency starting date, as your Cdn departure date.
In the past, there was rarely any harm in filing dual-status or even full-year resident when a 1040NR was sufficient. 1040NR general yields a higher taxrate that a 1040 (which is opposite of the Cdn experience). But, while a 1040 might save you *some* tax, in *some* instances (usually when one arrives in US in July/August), the since the regime of excessive burden of foreign account and holdings reporting has arrives, 1040 NEVER in my opinion outweighs the simplicity 1040NR if that option is available, which it would be in our original posters case, and, I assume, you as well.
Does this result perhaps in a period where from a tax filing point of you (not ta residency point of view) that one can file as if not resident of either country for a period at the end of the year? Yes. That a function of Canada's residency-based tax system vs. IRS citizenship-based tax system. So be it. It can just as easily occur that one be required to file as if a resident of BOTH countries for a period during the year. So be it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks for all the help!
I'll probably let a professional run the numbers, but it helps to know all the scenarios.
I did some reading about Section 217 and I wanted to check if my understanding of it makes sense. The RRSP is completely in her name and next year she won't be making any income.
So next year, if she withdraws ~10k from the RRSP, the Canadian bank will withhold 25% for foreign tax, but she can claim this back by filing a Section 217 with the CRA using her personal amount. Just wondering why it would be more since her personal amount would only be around ~11k?
In addition for the withdrawal, would the IRS see that as income? Would we be able to claim a foreign tax credit on that 25% even though the CRA would refund that amount to her under Section 217? That seems a bit odd if she were able to, but if not, wouldn't she have to pay a bit of income tax on the US side?
Thanks again for all the help, it's been really useful so far.
I'll probably let a professional run the numbers, but it helps to know all the scenarios.
I did some reading about Section 217 and I wanted to check if my understanding of it makes sense. The RRSP is completely in her name and next year she won't be making any income.
So next year, if she withdraws ~10k from the RRSP, the Canadian bank will withhold 25% for foreign tax, but she can claim this back by filing a Section 217 with the CRA using her personal amount. Just wondering why it would be more since her personal amount would only be around ~11k?
In addition for the withdrawal, would the IRS see that as income? Would we be able to claim a foreign tax credit on that 25% even though the CRA would refund that amount to her under Section 217? That seems a bit odd if she were able to, but if not, wouldn't she have to pay a bit of income tax on the US side?
Thanks again for all the help, it's been really useful so far.
A 217 not only gets you the personal amount but also some other non-refundable amounts that either of you incur, most notable medical expenses, like your work insurance premiums and copays etc. That could run a few thousand. And the first tax bracket is only 23%, so even taking more than what you can deduct will be less than 25%.
As to US income, only gains/income accrued after arrival will be taxable by IRS (and Cali), so this will be minimal.
Of course, any refunded CRA money cannot be used as a tax credit or deduction. But what you eventually do pay can. If you have little or no income to repoirt in IS, it is best simply to use the tax as a deduction os schedule A.
As to US income, only gains/income accrued after arrival will be taxable by IRS (and Cali), so this will be minimal.
Of course, any refunded CRA money cannot be used as a tax credit or deduction. But what you eventually do pay can. If you have little or no income to repoirt in IS, it is best simply to use the tax as a deduction os schedule A.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
My situation is the same. So, I just want to confirm few things:
1. although the departure date is (say 1 Nov 2016) I am still allowed to withdraw TFSA on 31 Dec 2016 without reporting & paying tax to US?
2. Regarding RSSP, some advice to sell and buy the same mutual funds again before leaving Canada. Then, once in US, then you can withdraw without any tax to US (considered the difference would be minimum as the date is say in weeks after performing buying again the same funds). Is this correct?
3. another person advise that we don't need to do this as we will report the highest value in a year (assuming the mutual fund will produce quaterly report). Is this correct?
thanks
1. although the departure date is (say 1 Nov 2016) I am still allowed to withdraw TFSA on 31 Dec 2016 without reporting & paying tax to US?
2. Regarding RSSP, some advice to sell and buy the same mutual funds again before leaving Canada. Then, once in US, then you can withdraw without any tax to US (considered the difference would be minimum as the date is say in weeks after performing buying again the same funds). Is this correct?
3. another person advise that we don't need to do this as we will report the highest value in a year (assuming the mutual fund will produce quaterly report). Is this correct?
thanks
1. Yes, if you are not filing a full year 1040.
2. Correct
3. No. Your US tax is based on the book value of your funds, not the market value. you need to crystallize any gains before leaving.
who is telling you this?
2. Correct
3. No. Your US tax is based on the book value of your funds, not the market value. you need to crystallize any gains before leaving.
who is telling you this?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing