Hi, I'm a Canadian citizen and have accepted a job offer in the United States; relocating there shortly, via TN1.
- Plan to work in the U.S. for a year or two, then come back to Canada; don't plan on pursuing a green card
- Single, no dependents; family in Canada
- Don't own property
- Ontario drivers license, health card, and address
- Bank accounts in Canada: checking, savings, brokerage/investments - RRSP/TFSA/Non-registered, all with ETFs
Trying to determine my tax residency status for the upcoming move.
** Main Question ** : Since I only intend to stay in the U.S. for a year or two, and have investments in Canada, are there any advantages to switching my tax residency to the U.S.?
From online research, I see the following options:
[Maintain Canadian Tax Residency via Tax Treaty Tie-Breaker]
----------------------------------------------------------------------------------
- keep all Canadian investment accounts
- file 1040NR + 8833 (tax treaty) with IRS to maintain non-resident alien status (even though I'd exceed the substantial presence threshold)
- file with CRA and claim foreign tax credit against my U.S. income
- do I need to file FBAR as a non-resident alien?
- do I need to report all my Canadian accounts/investments (FinCen 114, 8621, 3520A)?
[Switch to U.S. Tax Residency]
-----------------------------------------
- would need to liquidate investment accounts (currently at a loss position)?
- would need to close TFSA?
- would need to file an exit return with the CRA and do a deemed disposition?
- will not be able to invest in Canada while being in the U.S.?
- moving to a high-tax state (California), don't think there are advantages vs. Ontario
- is there any advantage to switching my tax residency to the U.S.?
Many thanks to all who can help.
Canadian moving to U.S. (TN1) - Tax Residency Questions
Moderator: Mark T Serbinski CA CPA
Residency, as the CRA will tell you, is a matter of fact, not intentions. If you do not have a residence in Canada, and you live and work in US, you are no longer a CDn tax resident.
Your list of items is missing a very important point. The 8833 form you would file would not have sufficient residential ties in Canada to warrant your choice. Investments NEVER outweigh physical presence.
And even if you do decide to pretend to still live in Canada, that will not absolve you of California tax on your wages, so you will be paying Ontario and California tax on that (at least), so no tax savings there.
Your list of items is missing a very important point. The 8833 form you would file would not have sufficient residential ties in Canada to warrant your choice. Investments NEVER outweigh physical presence.
And even if you do decide to pretend to still live in Canada, that will not absolve you of California tax on your wages, so you will be paying Ontario and California tax on that (at least), so no tax savings there.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for the prompt reply.
I understand the point about California taxes, since the double-taxation provision only shields me from federal taxes, not state.
Will I be forced to sell my ETFs in TFSA/RRSP/Non-reg into cash? They're currently at a loss (quite substantial), so selling them before I leave would cost me dearly. Is there away around it? What happens if I leave a Canadian address on my checking/savings/brokerage accounts?
Doesn't my Canadian address + drivers license + passport + family provide sufficient grounds for Canadian tax residency, under 8833?
I understand the point about California taxes, since the double-taxation provision only shields me from federal taxes, not state.
Will I be forced to sell my ETFs in TFSA/RRSP/Non-reg into cash? They're currently at a loss (quite substantial), so selling them before I leave would cost me dearly. Is there away around it? What happens if I leave a Canadian address on my checking/savings/brokerage accounts?
Doesn't my Canadian address + drivers license + passport + family provide sufficient grounds for Canadian tax residency, under 8833?
"forced" to sell? not in your RRSP or TFSA. But you can't keep your Cdn brokerage account, so you will at least need to transfer these.
And transfer or not, your non-sheltered investments will be deemed sold when you leave , so your losses are already triggered for CDn purposes.
But your TFSA investments, as well as losing rax-deferral in US, will no doubt contain investments that fall under the PFIC definitions, and your TFSA is likely considered a trust.
I would strongly suggest you collapse the TFSA before year-end, so at least you will only have the big headaches in 2015 (if you move in 2015). Same for many of your CDn investments.
The ties you mention are NOT sufficient for residency. First, the regs refer to DEPENDENTS, not family. Second, none of these are residential. Third, your DL is not going to remain valid after you leave: you will need a Cali DL within 30 days.
Nothing in your posts would indicate sufficient ties to warrant a treaty result of Cdn residency.
And transfer or not, your non-sheltered investments will be deemed sold when you leave , so your losses are already triggered for CDn purposes.
But your TFSA investments, as well as losing rax-deferral in US, will no doubt contain investments that fall under the PFIC definitions, and your TFSA is likely considered a trust.
I would strongly suggest you collapse the TFSA before year-end, so at least you will only have the big headaches in 2015 (if you move in 2015). Same for many of your CDn investments.
The ties you mention are NOT sufficient for residency. First, the regs refer to DEPENDENTS, not family. Second, none of these are residential. Third, your DL is not going to remain valid after you leave: you will need a Cali DL within 30 days.
Nothing in your posts would indicate sufficient ties to warrant a treaty result of Cdn residency.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Now, if you leave only in the next couple of monh, you can file a 1040NR, simply because you ddin;t meet SPT (and may avoid the trust/PFIC issue for 2015, but that still means you are non-resident of Canada and US resident.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
For 2015 I am definitely non-resident in US and resident in Canada; key question is about 2016.
From http://www.serbinski.com/working-in-usa ... tion.shtml
"Where a Canadian resident is absent from Canada (for whatever reason) *** or less than 2 years***, he or she will be presumed to have retained his or her residence status while abroad, unless he or she can clearly establish that he or she severed all residential ties on leaving Canada. If there is evidence that his or her ***return to Canada was foreseen*** at the time of his or her departure (e.g. a contract for employment upon return to Canada), the Department will presume that he or she did not sever all residential ties on leaving Canada. "
Describes my case perfectly.
* Also, is it possible to be a tax resident of both countries at the same time? i.e. filing 1040 and T1? which one gets filed first?
* What would I enter as my province of residence on the Canadian T1?
* How do people who have investments in Canada handle work abroad? Surely they can't be forced to sell at a loss?
* "you can't keep your Cdn brokerage account" -> is this a CRA regulation? Didn't find anything in their publications; could you point me to the source for this?
Thanks again.
From http://www.serbinski.com/working-in-usa ... tion.shtml
"Where a Canadian resident is absent from Canada (for whatever reason) *** or less than 2 years***, he or she will be presumed to have retained his or her residence status while abroad, unless he or she can clearly establish that he or she severed all residential ties on leaving Canada. If there is evidence that his or her ***return to Canada was foreseen*** at the time of his or her departure (e.g. a contract for employment upon return to Canada), the Department will presume that he or she did not sever all residential ties on leaving Canada. "
Describes my case perfectly.
* Also, is it possible to be a tax resident of both countries at the same time? i.e. filing 1040 and T1? which one gets filed first?
* What would I enter as my province of residence on the Canadian T1?
* How do people who have investments in Canada handle work abroad? Surely they can't be forced to sell at a loss?
* "you can't keep your Cdn brokerage account" -> is this a CRA regulation? Didn't find anything in their publications; could you point me to the source for this?
Thanks again.
That definition provided by Serbinksi was from the previous definition of residency from CRA, which was made obsolete many years ago. Intention, as I said earlier, is no longer a criteria.
Even so, you will have no residential ties in canada when you move.
You do not have to "sell" immediately, but you cannot buy, and cannot swap, and cannot re-invest dividends and distributions. However you can transfer, and yes, there are some investmebts that are not available to CDn-non-residnts, like most Cdn mutual funds (some are not even available to residnts of some provinces, let alone US residents).
The foreign brokerage issue is an SEC regulation. SEC forbids non-licensed brokers from carrying on business with residents of the US (and your broker is not licensed in US). Each state ALSO has such regulations. This is a long-standing rule, I would point you to ida.ca and ific.ca for information on this. You could also check with SEC and its California counterpart.
For this reason, most Cdn brokers will encourgae (if not downright insist) that you close your account with them.
Even so, you will have no residential ties in canada when you move.
You do not have to "sell" immediately, but you cannot buy, and cannot swap, and cannot re-invest dividends and distributions. However you can transfer, and yes, there are some investmebts that are not available to CDn-non-residnts, like most Cdn mutual funds (some are not even available to residnts of some provinces, let alone US residents).
The foreign brokerage issue is an SEC regulation. SEC forbids non-licensed brokers from carrying on business with residents of the US (and your broker is not licensed in US). Each state ALSO has such regulations. This is a long-standing rule, I would point you to ida.ca and ific.ca for information on this. You could also check with SEC and its California counterpart.
For this reason, most Cdn brokers will encourgae (if not downright insist) that you close your account with them.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Spoke to my brokerage (Scotia iTrade); posting this information here, as I'm sure it will be useful to others as well.
Their policy on the matter does require the account holder to provide a U.S. address upon relocation (retaining a Canadian address is not allowed), and the following consequences apply (when the owner provides a California address):
- RRSP account: can remain open and trades are allowed
- TFSA account: can remain open, but only sell transaction are allowed (no buys)
- Non-registered (cash) account: must be closed within 60 days of the address change (the holding must be sold and the proceeds are remitted to the owner in cash)
nelsona, thank you for your replies.
Their policy on the matter does require the account holder to provide a U.S. address upon relocation (retaining a Canadian address is not allowed), and the following consequences apply (when the owner provides a California address):
- RRSP account: can remain open and trades are allowed
- TFSA account: can remain open, but only sell transaction are allowed (no buys)
- Non-registered (cash) account: must be closed within 60 days of the address change (the holding must be sold and the proceeds are remitted to the owner in cash)
nelsona, thank you for your replies.
Yup.
And that policy is pretty much universal.
You would want to collapse the TFSA becaause of the tax and reporting implications in US, not becuase of any legal concerns. You canalways replenish if you retunr to canada.
And that policy is pretty much universal.
You would want to collapse the TFSA becaause of the tax and reporting implications in US, not becuase of any legal concerns. You canalways replenish if you retunr to canada.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Follow up questions:
1. FBAR does not need to be filed for a tax year where I'm not a resident (moving in late 2015, would not meet the SPT for 2015), correct?
2. FBAR signing authority includes accounts to which I have power-of-attorney (correct?); what about accounts where I am named a beneficiary?
3. If I close my TFSA and non-registered accounts, and keep only RRSP (in addition to checking/savings), do I need to file 8938 for tax year 2015? (even though I'd be filing 1040NR as a non-resident); the RRSP in question (two of them in fact) holds Canadian ETFs and mutual funds.
4. Is 8621 needed for RRSPs?
5. I know it's very general, but how much does it cost to have a return like that done by a pro? Hundreds of dollars, over a thousand?
1. FBAR does not need to be filed for a tax year where I'm not a resident (moving in late 2015, would not meet the SPT for 2015), correct?
2. FBAR signing authority includes accounts to which I have power-of-attorney (correct?); what about accounts where I am named a beneficiary?
3. If I close my TFSA and non-registered accounts, and keep only RRSP (in addition to checking/savings), do I need to file 8938 for tax year 2015? (even though I'd be filing 1040NR as a non-resident); the RRSP in question (two of them in fact) holds Canadian ETFs and mutual funds.
4. Is 8621 needed for RRSPs?
5. I know it's very general, but how much does it cost to have a return like that done by a pro? Hundreds of dollars, over a thousand?
None of the filings you mention are required if non-resident.
2. When you do file a 1040, all acounts for which you have signing authority are included (POA. yes), not if you are merely beneficiary.
3. 8938 will be required if your foreign assets, including RRSP are over the thresshhold.
4. RRSPs (ONLY) are exempt from PFIC requirements.
2. When you do file a 1040, all acounts for which you have signing authority are included (POA. yes), not if you are merely beneficiary.
3. 8938 will be required if your foreign assets, including RRSP are over the thresshhold.
4. RRSPs (ONLY) are exempt from PFIC requirements.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Re:
nelsona wrote:
> That definition provided by Serbinksi was from the previous definition of
> residency from CRA, which was made obsolete many years ago. Intention, as I
> said earlier, is no longer a criteria.
>
> Even so, you will have no residential ties in canada when you move.
>
> You do not have to "sell" immediately, but you cannot buy, and
> cannot swap, and cannot re-invest dividends and distributions. However you
> can transfer, and yes, there are some investmebts that are not available to
> CDn-non-residnts, like most Cdn mutual funds (some are not even available
> to residnts of some provinces, let alone US residents).
>
>
> The foreign brokerage issue is an SEC regulation. SEC forbids non-licensed
> brokers from carrying on business with residents of the US (and your broker
> is not licensed in US). Each state ALSO has such regulations. This is a
> long-standing rule, I would point you to ida.ca and ific.ca for information
> on this. You could also check with SEC and its California counterpart.
>
> For this reason, most Cdn brokers will encourgae (if not downright insist)
> that you close your account with them.
Quick heads-up: the SEC still slams the door on unlicensed brokers pitching to U.S. investors, and a private placement won’t shield you if you ignore it. Anyone raising cash needs to know the Reg D carve-outs and how they mesh with state rules. JD Supra’s guide on picking a securities lawyer https://www.jdsupra.com/legalnews/10-ke ... e-1391811/ lays out what to watch for, especially if you’ve got cross-border money in the mix
> That definition provided by Serbinksi was from the previous definition of
> residency from CRA, which was made obsolete many years ago. Intention, as I
> said earlier, is no longer a criteria.
>
> Even so, you will have no residential ties in canada when you move.
>
> You do not have to "sell" immediately, but you cannot buy, and
> cannot swap, and cannot re-invest dividends and distributions. However you
> can transfer, and yes, there are some investmebts that are not available to
> CDn-non-residnts, like most Cdn mutual funds (some are not even available
> to residnts of some provinces, let alone US residents).
>
>
> The foreign brokerage issue is an SEC regulation. SEC forbids non-licensed
> brokers from carrying on business with residents of the US (and your broker
> is not licensed in US). Each state ALSO has such regulations. This is a
> long-standing rule, I would point you to ida.ca and ific.ca for information
> on this. You could also check with SEC and its California counterpart.
>
> For this reason, most Cdn brokers will encourgae (if not downright insist)
> that you close your account with them.
Quick heads-up: the SEC still slams the door on unlicensed brokers pitching to U.S. investors, and a private placement won’t shield you if you ignore it. Anyone raising cash needs to know the Reg D carve-outs and how they mesh with state rules. JD Supra’s guide on picking a securities lawyer https://www.jdsupra.com/legalnews/10-ke ... e-1391811/ lays out what to watch for, especially if you’ve got cross-border money in the mix