Does Deemed Disposition Affect Holding Period?

martuzzi · Post by **martuzzi** » Mon Jan 27, 2014 10:44 pm

I moved from Canada to the US on January 1, 2014. I hold common shares in an ordinary investment account that were purchased in July, 2013. Deemed disposition resulted in a capital gain on January 1. If I were to sell these shares for a further gain as a US resident in September, 2014, would this qualify as a long-term capital gain (>1 year holding period), or would the deemed disposition cause my holding period to only be 9 months and therefore a short-term gain?

Thanks very much. This forum has been a fantastic resource for my family and I!

nelsona · Post by **nelsona** » Tue Jan 28, 2014 11:45 am

Good question. The answer is NO, the determination of long/short-term would be based strictly on the holding period. Using the treaty provision for deemed disposition only affects the cost basis.

Its unusual for someone to have a move date of january 1. Could you describe the circumstances that make you think this was your move date?

martuzzi · Post by **martuzzi** » Tue Jan 28, 2014 2:29 pm

Thanks for the answer, Nelson.

I've assumed January 1 was my move date simply because that was the day that my family and I hopped on the plane and physically left Canada. It was part of an intercompany transfer. I ceased working for the Canadian branch on December 31 and began working for the US branch on January 1. Is the move date defined in some other way?

nelsona · Post by **nelsona** » Tue Jan 28, 2014 2:58 pm

No, that is perfectly fine.

You might want to simply choose December 31 (I assume you weren't actually physically living in your Cdn house on that day), as ths will close out your Cdn taxation now instead of having to file a return for 2014, with 1 day on it (you may even be be tempted not to file next year, which might cause problems).

nelsona · Post by **nelsona** » Tue Jan 28, 2014 3:21 pm

Now, while Isuggest that, you might have a lot of deemed dispositions that you may wish to appear by themselves on your 2014 return (along with your last pay) rather than added on top of your 2013 income.

nelsona · Post by **nelsona** » Tue Jan 28, 2014 3:21 pm

So, either way, choose what gives you lowest Cdn taxes.

martuzzi · Post by **martuzzi** » Tue Jan 28, 2014 3:24 pm

I was actually living in my house right up until the morning of December 31. Slept in a hotel that night, then hopped on a plane on January 1.

I figured I might be better off leaving the departure date at Jan 1 so that I won't need to pay the tax on the capital gains until 2015...However, I just realized that the BC provincial tax rate increase by 2.1% in 2014 on the top bracket, so I'm on the verge of changing my mind and making the departure date Dec 31.

Am I allowed to arbitrarily declare the departure date on Dec 31, even though I technically didn't leave the country until the next day?

nelsona · Post by **nelsona** » Tue Jan 28, 2014 3:59 pm

You slept in a hotel on December 31st, so that isn't arbitrary in my opinion. You broke your ties on that day.

I wouldn't worry about higher tax rates, since all that will be taxed on your 2014 return, if you choose 1/1/14 will be your deemed disposition. Even your wages that were paid in january will be excludable on line 256. While you will get no deductions in 2014, and no personal exemption, it should still be much lower than what you will pay on top of your 2013 income.

Just go with 1/1/14, but get your deemed dispo data all lined up now while it is fresh in your mind, and have easy access to all your accounts.

I trust you have collapsed your TFSA, etc.

nelsona · Post by **nelsona** » Tue Jan 28, 2014 4:03 pm

... and are transferring non-RRSP to US brokerage, and making sure your RRSP is a self-directred one at a brokerage that allows trading by US residnts.

nelsona · Post by **nelsona** » Tue Jan 28, 2014 4:03 pm

and are no longer collecting GST CCTB etc.

martuzzi · Post by **martuzzi** » Tue Jan 28, 2014 4:13 pm

non-RRSP has been transferred to a US brokerage.

TFSA has NOT been collapsed. I was planning on just leaving it alone and not doing anything with the investments inside of it until I go back to Canada in 3-4 years. Is this unwise? Should I also be moving the holdings within the TFSA to a US brokerage?

nelsona · Post by **nelsona** » Tue Jan 28, 2014 4:47 pm

Your TFSA is not sheltered in US AND there is onerous reporting requirements.

You should collapse it. Since TFSA is not subject to deemed dispostion, when you sell items you will be taxed on the entire lifetime gain in US, so a transfer would be wise as a first step.

There is a certain amount of planning that needs to be done before moving.

Anything ammount you take out of TFSA can be put back later when you return to canada (assuming you don't become permanent US resident).