I'm new here - and have been trying to deal with a topic for a long time now but can't seem to get a straight answer, so hoping those on the board here might be able to point me in the right direction.
I am a dual Canadian and American citizen, and was living in Canada. Starting in 2008, I began to work in the US, but still filed as a tax resident in Canada until June 2011 (I split my time between the two countries). I had also properly filed my US returns. Typically, 2008 - 2011, I would file my US return, then claim a credit on my Canadian return, and pay any difference.
When I officially left as a tax resident from Canada, my Canadian accountant told me I had to pay an exit tax on my investments (stocks/mutual funds) on my 2011 return. Basically, taxing me as if I had sold my investments on that date. Understand this was correct.
During 2012, in the process of moving these investments from my Canadian to a US broker, many of my Canadian mutual funds would not transfer, so I sold them first. All good so far. Except when I went to file my 2012 tax return, my US accountant had told me that I needed to report the sold funds as the original cost basis, even though I had already paid the exit tax to Canada (which is where most of the gains occurred).
This is my issue. I told him at that time it doesn't seem right, but he said there was no way to properly get a credit based on my prior year tax return, and that I wasn't legally able to step up my cost basis to the price on the day I left Canada. I asked about this several times. Filing at the full cost basis means I was double-taxed on approx. 2/3 of those capital gains.
I was recently told by someone that I could amend my 2011 US return with a form 8833, Treaty-Based Return of Position Disclosure (though I am having a lot of trouble understanding most of the form). And then I could amend my 2012 return with the stepped up cost-basis. Does anyone know if this is the correct way to go? Or if there is another good way to get this cleared up.
Thanks in advance for any tips/advice.
Capital Gains - Double Taxed after leaving Canada
Moderator: Mark T Serbinski CA CPA
You should have sold the investments to get the actual bump up, so the US does not recognize teh CRA exit tax as a step up in cost as you have so painfully found out. The only thing you can do is price teh original cost in USD see if that helps . You are correct in that there is a procedure under treaty that will allow you to use the exit tax as an increase in basis BUT it must be done on all the investments not just the ones you select. So look over all the shares you held when you came to the US and if so you must elect on all the portfolio for the treatry to overide the IRS general rulings.
JG
Hello,
When you paid the exit tax to Canada, wouldn't this tax paid show up on your form 1116 carry-forward worksheet. Since you were filing US tax returns in the same tax year when you paid the exit tax to Canada, you could claim this as a passive category foreign tax credit on form 1116. Since the US didn't consider that you sold the investments in that year, you should have a large foreign tax credit to carry forward to the year when you actually sold your investments for US tax purposes.
Did you claim the foreign tax paid on form 1116 in 2011 when you paid your exit tax?? This should save you! Correct me if I'm missing something.
Best Regards.
When you paid the exit tax to Canada, wouldn't this tax paid show up on your form 1116 carry-forward worksheet. Since you were filing US tax returns in the same tax year when you paid the exit tax to Canada, you could claim this as a passive category foreign tax credit on form 1116. Since the US didn't consider that you sold the investments in that year, you should have a large foreign tax credit to carry forward to the year when you actually sold your investments for US tax purposes.
Did you claim the foreign tax paid on form 1116 in 2011 when you paid your exit tax?? This should save you! Correct me if I'm missing something.
Best Regards.
Thanks for all the replies and help.
Just to clear up some information, I did not actually sell anything in 2011 (when I left Canada) - however, as part of Canadian tax law, was made to pay capital gains tax as if I had. I did not sell anything until the CY 2012. I did not have anything noted as carry over in a 1116 - my US accountant at the time was well aware of my situation, and never said anything about it (and I'm not sure I could claim it as nothing was actually sold at the time). As a US citizen since birth, I have been properly filing my tax return with the US for as long as I can remember.
I am going through Rev Proc 2010-19. I think this is what might apply - while certainly not written in laymen terms, from what I can understand, it means that with the right forms/proof, the investments should be able to be treated by the US as being acquired at the market value on the day I left Canada (as I would have already paid taxes on a gain up to that value).
So it seems I should have filed a form 8833 with my 2011 tax return (along with a copy of my Canadian return showing payment of the emigration tax payment), and then would have been able to claim the stepped up price (as of mid-2011) as my acquisition price, which would have allowed me to avoid the double-taxation. Does this make sense?
I guess the next step would be to talk to an accountant who is familiar with emigration issues. I'm hoping to see if an 8833 can be filed as part of an amendment to my 2011 US return, and after that is completed, amend my 2012 return to reflect the stepped up acquisition price, resulting in a lower gain and a refund of the overpaid taxes.
Just to clear up some information, I did not actually sell anything in 2011 (when I left Canada) - however, as part of Canadian tax law, was made to pay capital gains tax as if I had. I did not sell anything until the CY 2012. I did not have anything noted as carry over in a 1116 - my US accountant at the time was well aware of my situation, and never said anything about it (and I'm not sure I could claim it as nothing was actually sold at the time). As a US citizen since birth, I have been properly filing my tax return with the US for as long as I can remember.
I am going through Rev Proc 2010-19. I think this is what might apply - while certainly not written in laymen terms, from what I can understand, it means that with the right forms/proof, the investments should be able to be treated by the US as being acquired at the market value on the day I left Canada (as I would have already paid taxes on a gain up to that value).
So it seems I should have filed a form 8833 with my 2011 tax return (along with a copy of my Canadian return showing payment of the emigration tax payment), and then would have been able to claim the stepped up price (as of mid-2011) as my acquisition price, which would have allowed me to avoid the double-taxation. Does this make sense?
I guess the next step would be to talk to an accountant who is familiar with emigration issues. I'm hoping to see if an 8833 can be filed as part of an amendment to my 2011 US return, and after that is completed, amend my 2012 return to reflect the stepped up acquisition price, resulting in a lower gain and a refund of the overpaid taxes.
Exactly. Deemed dispositions are NOT recognized by IRS. Except that the treaty was changed to accomodate thios for the very problem you are having. The rev proc I mentionned outlines how to do this perfectly. You paid your taxes in Canada for the period you were resident there, and the rev proc essentially allowds you to only pay the IRS what you agined while in US.
What's surprising is that your CPA (and others) who deal with cross-border issues didn't know this. What are you paying them for?
What's surprising is that your CPA (and others) who deal with cross-border issues didn't know this. What are you paying them for?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
[quote="nelsona"]Exactly. Deemed dispositions are NOT recognized by IRS. Except that the treaty was changed to accomodate thios for the very problem you are having. The rev proc I mentionned outlines how to do this perfectly. You paid your taxes in Canada for the period you were resident there, and the rev proc essentially allowds you to only pay the IRS what you agined while in US.
What's surprising is that your CPA (and others) who deal with cross-border issues didn't know this. What are you paying them for?[/quote]
Well...that's a bit of a long story...but I think saying it involved family members and them not letting me pay even when I tried will probably give you a good idea (I use a different accountant now). But hoping to get this cleared up now.
Thanks for all your help!
What's surprising is that your CPA (and others) who deal with cross-border issues didn't know this. What are you paying them for?[/quote]
Well...that's a bit of a long story...but I think saying it involved family members and them not letting me pay even when I tried will probably give you a good idea (I use a different accountant now). But hoping to get this cleared up now.
Thanks for all your help!