1040-NR or 1040 for 2008, 2009?

jugador · Post by **jugador** » Mon Feb 02, 2009 9:10 am

Can I still make transactions inside my RRSP if I make an irrevocable election to defer its undistributed earnings? And if I want to cash it out, may I be better off in Canada by doing that at the time I elect to be treated as DNR?

In the case of the house, do I lose its primary residence treatment when I declare myself DNR?

nelsona · Post by **nelsona** » Mon Feb 02, 2009 12:25 pm

"Making transactions" does not trigger any immediate taxation. just like in Canad. The taxability of your RRSP in US will depend on its book value on the day you became a US resident taxapayer (ie. the day you satisfied either SPT or GC test, unless you took a treaty position).

The taxrate on RRSP withdrawls is 25% for non-residents. Unless you make less than ~$30,000/year in total income, there is almost no way that an RRSP withdrawal made while a resident of canada will cost you less than that.

jugador · Post by **jugador** » Tue Feb 03, 2009 9:18 am

OK, so if I file 1040 for 2008, my book value will as of January 1st 2008? I made some transactions to move it to a more conservative mix. I lost a chuck of it despite that. Will I have capital loses to carry forward? How difficult is to determine the numebers and file 8891?

nelsona · Post by **nelsona** » Tue Feb 03, 2009 9:57 am

If you file as resident in 208, then your book value is determined on January 2008. Note that book value means the cost basis on that date, not the market value.

Once this is determined, there is nothing left to do with your RRSP from year to year except report its year-emnd value on 8891. You need to not trhe book value on Jan 01, 2008 for your files. You wil then use this ammount when you begin withdrawing RRSP to determine what portion of that withdrawl is and is not taxable in US. The effect will be that only the growth since becoming US resident will be taxable.

I've explained this in more detail elsewhere.

jugador · Post by **jugador** » Tue Feb 03, 2009 11:17 am

Thanks, so any transactions during 2008 will just change the book value to be considered as the cost basis going forward. Then, if I cash it out after I elect to be treated as DNR, I will pay taxes to the US on the capital gains. I look at other queries, but it was not clear to me the fact that I may not be able to get the full 25% canadian withholding as a foreign tax credit.

nelsona · Post by **nelsona** » Tue Feb 03, 2009 12:12 pm

No, your transactions in 2008 will NOT afffect the book value of your accounts determined on January 1 2008. That has already been established.

When you collapse your RRSP, you will pay US tax on ALL the income, not just cap gains.

in general, you will not get credit for the full 25%. To get full credit your EFFECTIVE taxrate would need to be 25% AND your entire RRSP would need to be taxable, which it is not. In all cases the Cdn tax is limited to your effective taxrate on the taxable portion.

I advise most people in years when they take a large RRSP withdrawl, to do their taxes 2 ways: one using 1116 and one using all the Cdn tax paid as a deduction on schedule A.

On a collapse made soon after arriving in US (when little if any RRSP will be taxable in US) the deduction is always better -- if you don't get into AMT problems.

Othrwise, use the credit, and then hope you generate some other general category foreign income to use it in future.

jugador · Post by **jugador** » Wed Feb 04, 2009 8:56 am

Thanks for your thorough response.

Now, let's suppose that to avoid the hardship of filing 5471, I transfer my shares to my common-law partner. For 2009, I could file a dual status return with the US with the treaty position for the portion before GC. Can I do that, or it will be questionable to file 1040 only for the second portion?

nelsona · Post by **nelsona** » Wed Feb 04, 2009 4:30 pm

There si no problem filing dual-status: 1040NR until you get the GC, and then 1040 MFS for the second part.

You don't get standard deduction, and pay at MFS rates, though, which may be more tax.

jugador · Post by **jugador** » Wed Apr 08, 2009 8:47 am

OK, I got my green card now and I want to declare myself a DNR.
Should I call all my banks in Canada and tell them that I am no longer a resident for tax purposes?
My Canadian property got sold a few weeks before, what are the inplications and how it will differ from another property I am trying to buy in Canada very soon ?
Anything else I should be doing before filling next years tax return?

nelsona · Post by **nelsona** » Wed Apr 08, 2009 9:04 am

Just contact anyone who might pay you anything in canada that you are now non-resident. On your 2009 Cdn return you will indicate a departure date.

Buying property as a non-resident is no problem. Howevr selling that property requires certain compliance issues to be addressed. You can find info on the CRA international webpages.

jugador · Post by **jugador** » Wed Apr 08, 2009 3:50 pm

Great, thanks!!!

A follow up. I am keeping my common-law status in Canada. She's still living in Canada and filling resident. How does the primary residency exception work in this case if we are both in the new property's title?

nelsona · Post by **nelsona** » Wed Apr 08, 2009 8:13 pm

You can't have a principal residence in canada as a non-resident.

jugador · Post by **jugador** » Thu Apr 09, 2009 6:56 am

Does this mean that if we both own it, we can still claim half of principal residence because she is still a Canadian resident?
Can I still claim all the mortgage interest in Schedule A? Technically, I will be owning half and the common-law status is not recognized by the IRS.

nelsona · Post by **nelsona** » Thu Apr 09, 2009 7:26 am

Claiming principal residence is typically only done at the time of sale.

For US, this is simply an investment property for you (a cottage) so your half of the mortgage is deductible.

Getting back to residency issues, you seem to be hinging your claim on non-residency on the moment you got green card.

Why? You were either non-resident of canada before this event, or you are still resident of canada after this event. The treaty doesn't put much stock in getting GC as a tipping point to US residency (otherwise, every US citizen living in canada would be considered deemed non-resident, which is NOT the case). The case for Deemed non-residency is BOTH being considered a tax resident of US AND outweighing your Cdn ties with US ties.

If your spouse is still in canada, and you are buying another house in canada with her, unless you are not spending any time in canada whatsoever, you are still a Cdn resident. What residential ties do you have in US?

nelsona · Post by **nelsona** » Thu Apr 09, 2009 7:31 am

Looking back over this thread, it seems to me that you are trying to use the fact that you need to file a 1040 in US (because you got a GC) as a basis for being considered non-resident of canada.

You were more correct when you told IRS that your SITUATION, as you described it, showed you to have closer ties in canada than in US. That SITUTATION has still not changed, from what you say.

All that has happened is that you got a GC, which forces you to file a 1040. It changes nothing with regards to your residentil SITUATION.

Unless you can describe to me how your SITUTATION has changed, I would recommend you continue to file a normal Cdn tax return, reporting world income. You will also report a full 1040, just like 1000's of US citizens and GC holder living in Canada do every year.