Post Security on Departure

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Stevec
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Joined: Wed May 23, 2018 3:33 pm

Post Security on Departure

Post by Stevec »

I’m planning to depart Canada and move to the US towards the end of this year and I have a pretty large gain on a non-registered mutual fund account. I’ve started to do some research and have learned that I can defer the departure tax on this gain until I actually sell the funds by posting security with CRA.

I’m hoping to use the funds themselves as security, would this be ok? Does anyone know more about this? Do my funds become frozen by CRA until I decide to sell them? What if I just want to sell a portion of the funds down the road and not all of them? Would I have to pay a portion of the departure tax at that point in time? Any pitfalls to be worried about?

From reading various articles, it looks like I can get a bump-up on any assets that are deemed to be sold on departure on the US side by filing a special election; which will reduce or eliminate double taxation. However, if I decide to post security and defer the tax, how would this election work in that case? Would I just file the election on my US return in the year I ultimately sell the funds and pay the departure tax to CRA or would I have to file a retroactive election back to the year of my arrival?

Any help would be appreciated.
nelsona
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Post by nelsona »

You have it about right. You would pay deemed disposition tax each time you sold, and you can use the same asset as security.

The Rev Proc to shield pre-arrival gains from US tax has to be filed the first year you file a US tax return, but, as you can see, you only avail yourself of theelection when you seel some/all of the investments in question, so putting off payment of deemed disposition until you sell doesn't have any affect on this election.

Just a little known point is that if you defer payment, and then keep the investment for 10 years, you don't have to pay deemed disposition tax at all on those investments.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Stevec
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Joined: Wed May 23, 2018 3:33 pm

Post by Stevec »

Thanks so much.

What do you mean specifically by the election has no effect? Does that mean if I decide to defer all of the departure tax, then the election will not help me at all and I will be double taxed on this income in the future when I sell the funds and pay the departure tax? If so, I guess I need to decide if deferring the tax is even worth it. Can you please provide some clarification on this please?

Wow, interesting info about the 10 year rule. In all the reading I did I never came across anything about this.

Thanks.
nelsona
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Post by nelsona »

I was simply referring to your question on when to make the election is not affected by your decision to postpone payment.

You make the election in the first return with IRS, but it doesn't come into effect until you sell one of the listed assets. It is only triggered when you sell the item, at which time you will pay CRA on the deemed gains calculated at departure, and will pay IRS tax on the gains post-departure -- only on the item that you sold.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Stevec
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Joined: Wed May 23, 2018 3:33 pm

Post by Stevec »

Ah ok, got it thanks. I misunderstood what you said.

So, as long as I make the election in the year I arrive I will be ok; regardless of when I sell the funds.

Thanks so much for your help. I will call CRA to see how to start the process to post the funds as security.
nelsona
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Post by nelsona »

Look at form T1244 from CRA
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

Just one other thing to consider:
Once you leave Canada for US, your broker is no longer allowed to deal with you in anon-registered account. many firm then INSIST that you close your account, which may force you to sell your fund, since it cannot be transferred to US.

Other may allow you to have a "sell-only" account, which would work for you

So you may want check on this and make sure that you will be able to hold these funds intact after leaving.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

... and do this well before leaving
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Stevec
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Joined: Wed May 23, 2018 3:33 pm

Post by Stevec »

Thanks for the great advice!

I will call my broker to see if he can still service the account and will call CRA in short order as well.

Thanks!
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