I am planning to head to the US in July 2012 to work. I have no residence in Canada (all accounts, credit cards, etc use my parents address). I do have a number of Canadian accounts (including an RRSP and a TFSA), all with values over $10K, and all generating income. I intend to return to Canada after a relative short period, about 2-3 years.
The sense I get from these forums is that it would be advantageous to file a departure return in Canada, and file as a resident in the US. What are the benefits of doing so, and are the benefits worth the hassle of closing certain accounts and declaring everything in the US? My original thought was to maintain residency for tax purposes in Canada, and file as a non-resident in the US, since I plan to return to Canada after a couple years.
I will be in California, which has high taxes as far as I can tell - about comparable to what I'd pay in Ontario.
Going to US for work on TN Visa: Resident or Non-resident?
Moderator: Mark T Serbinski CA CPA
As I understand it, maintaining residency in Canada while living abroad will be quite difficult. You will have a place to live, a job, possibly a car, bank accounts, etc. These are all things a resident would have. Therefore, you should file a departure return.
You should review IRS Publication 519 to determine whether you will be considered a resident or non-resident alien for 2012. It sounds like you'll be just on the threshold of the 183 day substantial presence test, so make sure to document when you arrive in the US!
If you have any doubts about your option of closing a TFSA before emigrating, read the longest TFSA thread on this forum. I've completed one set of 3520 and 3520-A forms and they are a pain in the rear end. If your TFSA contains mutual funds, you will also need to track your earnings for each lot of shares purchased with a complicated method called mark-to-market and report that income on form 8621. Finally, because you pay no tax on a TFSA in Canada, no tax credit may be used against tax due in the US on those mutual funds. Sell your TFSA. Sell it now, if you're committed to emigrating.
Your RRSP will be much easier, reportable on form 8891 each year. You may elect to defer tax until withdrawal, should you retire in the US.
Make sure to report all your non-US bank accounts on Form TD-F 90.22-1 (FBAR).
You should review IRS Publication 519 to determine whether you will be considered a resident or non-resident alien for 2012. It sounds like you'll be just on the threshold of the 183 day substantial presence test, so make sure to document when you arrive in the US!
If you have any doubts about your option of closing a TFSA before emigrating, read the longest TFSA thread on this forum. I've completed one set of 3520 and 3520-A forms and they are a pain in the rear end. If your TFSA contains mutual funds, you will also need to track your earnings for each lot of shares purchased with a complicated method called mark-to-market and report that income on form 8621. Finally, because you pay no tax on a TFSA in Canada, no tax credit may be used against tax due in the US on those mutual funds. Sell your TFSA. Sell it now, if you're committed to emigrating.
Your RRSP will be much easier, reportable on form 8891 each year. You may elect to defer tax until withdrawal, should you retire in the US.
Make sure to report all your non-US bank accounts on Form TD-F 90.22-1 (FBAR).
Thanks for the help!
I don't see why CRA would not allow me to remain a resident of Canada for tax purposes. I will still have plenty of ties to Canada that I don't plan to sever any time soon. If anything, it would be the other way around - CRA may prevent me from becoming a non-resident.
In any case, I'm still having trouble understanding *why* I would want to file a departure return in Canada. If I do so, I do not gain RRSP contribution room from my US income as far as I know. Don't forget that I plan to return to Canada after 2-3 years. My US employer does not have a 401k plan, and the $5K contribution cap on the IRA limits its usefulness. If I remain a resident of Canada for tax purposes, I could contribute to my Canadian RRSP in addition to an IRA, and offset any Canadian taxes that would have been owed.
I'm sure there is a flaw in my reasoning, so please point it out!
I don't see why CRA would not allow me to remain a resident of Canada for tax purposes. I will still have plenty of ties to Canada that I don't plan to sever any time soon. If anything, it would be the other way around - CRA may prevent me from becoming a non-resident.
In any case, I'm still having trouble understanding *why* I would want to file a departure return in Canada. If I do so, I do not gain RRSP contribution room from my US income as far as I know. Don't forget that I plan to return to Canada after 2-3 years. My US employer does not have a 401k plan, and the $5K contribution cap on the IRA limits its usefulness. If I remain a resident of Canada for tax purposes, I could contribute to my Canadian RRSP in addition to an IRA, and offset any Canadian taxes that would have been owed.
I'm sure there is a flaw in my reasoning, so please point it out!
Naveg, here is my advice.
Make an appointment with the Serbinski firm and pay them to do your Canadian, U.S. and California tax returns if and when you go. If you live near Toronto then it's simple to go visit with them.
As a dual Canada/U.S. citizen living in Florida for over 20 years now, let me tell you, you want to do EVERYTHING correctly...and it's unfortunately not simple. Here are some ideas that went through my mind just reading your brief description:
1. Over $10,000 assets in Canada implies filing annual U.S. FBAR form.
2. TFSA not treated like an RRSP. You cannot defer U.S. taxation on the earnings in the TFSA.
3. California? The last I heard is that California will want state income tax on your RRSP earnings. They will not let you defer as the U.S. federal government does.
4. If you intend to return to Canada, then Canada deems you a resident for income tax purposes while you are away. You would need to file in both countries and claim foreign tax credits so you are not double taxed. It may be beneficial to say you are leaving with no planned intention of when to return and instead not file in Canada. Serbinski could help you with that decision.
5. Depending upon what you do for 4 above, you may need to ensure that you severe all Canadian residential ties. This may even include sending a letter to OHIP.
There are many things to know. Too many.
So talk with Serbinski and do it right from the start. If you decide that you wish to stay in the U.S. and get a green card, then you definitely don't want to do something that later causes you trouble.
Unfortunately, income tax is a mess and cross border income tax is even worse. I recommend professional help in your case.
Make an appointment with the Serbinski firm and pay them to do your Canadian, U.S. and California tax returns if and when you go. If you live near Toronto then it's simple to go visit with them.
As a dual Canada/U.S. citizen living in Florida for over 20 years now, let me tell you, you want to do EVERYTHING correctly...and it's unfortunately not simple. Here are some ideas that went through my mind just reading your brief description:
1. Over $10,000 assets in Canada implies filing annual U.S. FBAR form.
2. TFSA not treated like an RRSP. You cannot defer U.S. taxation on the earnings in the TFSA.
3. California? The last I heard is that California will want state income tax on your RRSP earnings. They will not let you defer as the U.S. federal government does.
4. If you intend to return to Canada, then Canada deems you a resident for income tax purposes while you are away. You would need to file in both countries and claim foreign tax credits so you are not double taxed. It may be beneficial to say you are leaving with no planned intention of when to return and instead not file in Canada. Serbinski could help you with that decision.
5. Depending upon what you do for 4 above, you may need to ensure that you severe all Canadian residential ties. This may even include sending a letter to OHIP.
There are many things to know. Too many.
So talk with Serbinski and do it right from the start. If you decide that you wish to stay in the U.S. and get a green card, then you definitely don't want to do something that later causes you trouble.
Unfortunately, income tax is a mess and cross border income tax is even worse. I recommend professional help in your case.