Capital losses upon returning to Canada

bcbeagle · Post by **bcbeagle** » Tue Sep 22, 2009 11:30 pm

My spouse and I are both Canadian citizens, returning to Canada on very short notice after working in California for the past 6 years (spouse on TN, me on H-1B).

We have a small jointly held brokerage account in the US that we need to wind up accordingly. Almost all of the shares are currently worth less than we paid for them. It seems these capital losses will be of no use to us (beyond the $3000 we could possibly claim on our 2009 return), unless we return to the US one day. Is there any practical difference between transferring the shares to a Canadian broker, or actually selling the shares before leaving (and possibly re-purchasing once in Canada)?

After returning to Canada, I will continue with my US employer on a telecommuting basis. They will utilize a payroll service provider to convert my pay to Canadian dollars and take care of Canadian withholding. I am not yet certain if there will also be US withholding, as I may travel to the US for a few days each year to perform some of the work. In the future, if I need to file 1099-NR to refund any US withholding, could the above capital losses come into play? Any advice would be appreciated....thanks in advance.

nelsona · Post by **nelsona** » Wed Sep 23, 2009 3:07 am

The losses you incur while a US resident will only help you on US returns unfortunately. When you return to Canada all your holdings are deemed to have been sold and bought back the day you moved.

Once you move, capiyal transactions are not even reportable in US anymore for non citizens.

Since you may have future US earnings, it is generally best to trigger those losses now by selling. You might then be able to use them on a future 1040NR. However, if only a small part of your wages will be in US, likely you will not owe any US tax on it anyways.

Then start with a fresh slate in canada.

One questionL do you have US citizen children? If you do, you should probably keep filing US 1040 returns, as they would still qualify for child tax credit. Free money.

bcbeagle · Post by **bcbeagle** » Wed Sep 23, 2009 10:23 am

Yes, we have 3 US citizen children. I hadn't considered the child tax credit, thanks for the suggestion...I will look into that.

Also, I exercised some incentive stock options in 2009. I know this may trigger an AMT bill, but our joint world income should be sufficiently low this year to avoid a big charge. I can't sell the shares before moving to Canada, as they are currently illiquid (private company). Would the Canadian cost basis for these shares be the 'fair market value' at time of exercise (as will be used for AMT calculations), or the exercise price itself? I'm assuming I get to use the 'fair market value'. Thanks again in advance.

nelsona · Post by **nelsona** » Wed Sep 23, 2009 10:28 am

Wow, you were busy.

It is in your interest to keep filinga 1040 every year as this is $3000 feee money. You are allowed to by treaty.

Your analysis of the options issue is correct.
It gets a little tricky if you had not exercised them, but otherwise it is pretty straightforward.

nelsona · Post by **nelsona** » Wed Sep 23, 2009 10:52 am

Note too that if you are going to be hit with AMT, you may want to preserve your cap losses, or even wait to trigger them until another year.