Am I a nonresident alien or a dual-status alien (or either)?

[rc42]

Hi,

My situation is similar to some of the more recent posts, but I'm still unclear as to the difference between dual-status and non-resident alien status.

Here's my situation:
1. I'm a single Canadian citizen. Up until August 2005 I had only ever had Canadian income. I held some CSBs, Canadian mutual funds and an RRSP.

2. In August I finished grad school and was offered a job at a US university. I cashed in my non-RRSP mutual funds and declared myself non-resident to CRA and my financial institutions.

3. I moved to the US on 11 Aug 2005 on a TN visa. I counted my days in the US in the last 3 years, and I don't meet the substantial presence test.

4. I switched from a TN to an H1B visa in January 2006. I expect to work in the US indefinitely, and I don't have substantial ties to Canada, except for my RRSP, which will remain untouched. I have a Canadian credit card that I use when I visit family back home.

So my interpretation of the IRS and CRA publications is the following:
1. Canadian 2005 return: I file an exit return, declaring all Canadian income up to Aug 2005.

2. US 2005 return: Because I don't meet the residency tests, I began and ended the year as a nonresident. I was under the impression that I just file a 1040NR, declaring only my US wages from August. However, a previous poster who moved to the US in August was advised to file a dual-status return. What advantage does filing a dual-status return have over a 1040NR? It seems like you can't claim the standard deduction on either of them, so I don't see a difference.

3. Canadian 2006 return: I don't file a 2006 Canadian return as I will have non-resident tax withheld.

4. US 2006 return: I will be a resident alien this year, so I file a 1040 from this year on.

However, it seems funny to me that for the period between August and December 2005, both Canada and the US treat me as nonresident. I hope that I interpreted things correctly? I'd appreciate any and all comments.

Thanks very much,
Ron

[nelsona]

Pretty Close.

Canada: you report WORLD income up to your departure date, not just Cdn income.


US: Since you don't meet SPT, you can indeed simply file a 1040NR. As is 'clearly' explained in IRS Pub. 519, if you will meet SPT in 2006, and you spend sufficient time in US in 2005 year-end, you can CHOOSE to be dual-status (see the First-year Choice rules) . The advantage is that you have more itemized deductions at your disposal, and it rewmoves any doubt about your tax residency status in the eyes of IRS (for 2006) and for CRA (in 2005), should there be any ambiguity in your situation.

Moreover, the Cdn tax treaty allows you to file FULL YEAR 1040, and IRS will accept this under the condition that you decalre all your world income for the year. This can be an advantge if you had little or no income before arriving, or if you would benefit from the standard deduction, of from married joint filing. You can even exclude your Cdn wages prior to arrival bt form 2555. You are in effect treating yourself like a US citizen who has been outside US and is now returning.

In your case, you would do your US return in 3 ways: 1040NR, dual-status, or full-year 1040, and choose the one which yields the lowest US tax.

[rc42]

Hi,

Thanks for the great reply. One more quick question: do you know if I can deduct my 2005 state sales taxes if I file as a nonresident? I live in Florida (no state income tax), so the sales tax deduction option is very useful. On a "regular" (US resident) Schedule A, there's a box to check to say whether you're deducting state income or state sales tax, but there isn't the sales tax language on the Schedule A for nonresidents.

If I can't deduct state sales taxes, I guess this would be another advantage of doing a dual-status return over a 1040NR, right?

Thanks again
Ron

[nelsona]

As I said, filing as a non-resident has reduced list of deductions. The 1040NR instructions will guide you.

[rc42]

Sorry, by "this appears to be one," do you mean this appears to be a valid deduction, or one that a nonresident can't claim?