TN status moving late in 2016 - tax resident of neither?

xatham · Post by **xatham** » Sun Jul 03, 2016 11:29 pm

So, I'm moving to the US on a TN status (3 year contract) at the end of August.

I called the CRA, and they seemed pretty adamant - if I'm moving and don't keep an apartment/car/furniture/spouse/etc.. behind, I am no longer a Canadian resident for tax purposes, and should file an emigrant tax return for my departure date on my worldwide income up to that point.

However, since I will have been in the US for less than 6 months in 2016, I will not pass the test of substantial presence - and therefore, I'm not going to qualify as a resident in the US either. In that case, I should file as a non-resident alien on US-income for 2016.

At first glance, it looks like I'm going to be a resident of *neither* country, and that seems rather odd to me. Has anyone dealt with a situation like this before? I don't want to contravene the tax treaty Canada has with the US.

nelsona · Post by **nelsona** » Mon Jul 04, 2016 8:36 pm

When moving to US from Canada, your residency begins the day you move.
How you file in US has no bearing on this. If you do not meet SPT you can choose to file 1040NR OR 1040. But by treaty, you will be tax resident of US.

And you are still non-resident (emigrant) from Canada on thee day you move.

xatham · Post by **xatham** » Tue Jul 05, 2016 1:00 pm

So, under the tax treaty I would be a tax resident of the USA, but without SPT I could still file 1040 NR as a non-resident, and therefore pay taxes on worldwide income to neither country?

Am I getting this right? That'll save me a whole lot of income taxes.

nelsona · Post by **nelsona** » Tue Jul 05, 2016 1:57 pm

Correct, but I would question the notion that you would be saving a "whole lot" of taxes.

Any income you have would be either US or Cdn-sourced, so primary tax would be paid to someone.

Other than US and Cdn bank interest earned from September to December (which would indeed be tax-free under your scenario, what other income did you have in mind as being tax-free?

And be aware that 1040NR is typically a higher tax rate than 1040, especially for items that would no longer qualify for the Cdn-resident rate.

xatham · Post by **xatham** » Tue Jul 05, 2016 2:25 pm

I was under the impression that if my Canadian and US income are taxed separately, my marginal tax rate will be much lower than if I was taxed by either nation on my combined worldwide income - even if I would then be able to deduct the taxes already paid to the other country as per the Canada-US tax treaty.

All my canadian investments are currently in a TSFA investment fund, which I understand will be a igger pain than they're worth when I move to the US. I plan to move what I can into an RRSP and sell the rest as cash before I move, to avoid having to pay an exit tax on capital. Therefore I expect negligible interest to be taxable either way. I can defer payment of tax on RRSP income until a later date, by which I should be back in Canada anyhow.

I have no US assets as of the moment, so in an 1040R I would only need to report income from my US employer for the 3-4 months that I'll be working in the US, and my moving reimbursement.

Am I missing something? I'm asking here because I'm very much a neophyte at all this cross-border tax business.

xatham · Post by **xatham** » Tue Jul 05, 2016 2:28 pm

The first 3-4 months that I'll be working in the US, from when I move to the end of the tax year (Dec 2015). The following year, I will have substantial presence in the US, and will have to file 1040. However, by that point I will have negligible income from Canadian sources, so it will not make a big difference.

nelsona · Post by **nelsona** » Tue Jul 05, 2016 2:39 pm

Capital gains triggered by the sale of TFSA investments (or any other non-RRSP) will be reportable in US if they occur after you leave Canada, since they will be considered US-sourced, but you can get around this by selling before you leave 9as you should in any event).

Your Cdn income from before the move would have largely been exempted in US if you file a 1040, so no advantage there.

Your RRSP internal income isn't taxable in US regardless until you collapse the RRSP.

you didn't say if you were married but, if you are a 1040NR would probably end up taxing your US income more than if you reported all income on a 1040.

So not having to file as a resident of either country will simplify your taxes for 2016 (and gong forward if you take care of the details in this calendar year instaead of waiting), but will not be the tax windfall you seemed to expect.