Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

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CadCad
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Joined: Mon Jan 28, 2019 12:18 am

Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by CadCad » Mon Jan 28, 2019 12:37 am

After reviewing the extensive resources in this awesome forum (thank you all!) I have a general idea of which forms I need to fill but I feel my situation, even though it might be pretty common, has not be addressed in detail before. Hopefully the community feedback would server as a reference for those who come after as well.

Situation:
Canadian citizen employed to a Canadian employer for first half of 2018. Mid year left to the US with a work visa and started earning employment income from its new US employer while still collecting residual employment income in Canada during the rest of the year. Wife who is also Canadian was employed in Canada for the first half and then went on maternity leave and joined me in the US, no US income but continued receiving mat/parental benefits. We also own a rental property in Canada.

This is how we were planning to file after learning so much over here:

In Canada:
1-File departure tax return for both of us with departure date of when we last left Canada
2-T1159 Income Tax Return for Electing Under Section 216 to report non resident rental income for the 2nd part of the year
3-Non resident T1 return for the part of the year I was a non resident with Canadian employment income, no additional return for wife

In US:
4-1040 full year resident alien return married filing jointly using Form 2555 to exclude our Canadian employment income
5-Report mat benefits as unemployment compensation in 1040 claiming credit in Form 1116 for CAD taxes paid
6-Add up the taxes paid for the rental property while residents and non residents of Canada (1 and 2) and claim them as a tax deduction using Form 1116
7-Use Form 8833 to step up the base of the rental property and equity positions taxes in Canada by deemed disposition rules

Questions:
a) Am I over analyzing this? Can this plan be simplified while still following the rules?

b) Anything you can think I should take into a account or that I might be missing?

c) Anyone with experience filing 3 different returns in Canada during departure year?

d) When filing Form 8833, IRS asks for proof of payment but CRA allows the option of deferring paying those taxes until property/stocks are actually sold, anyone has any comments on how to make this two rules play along?

e) I have seen a couple of professional opinions indicating TFSA should not be reported using form 3520 since IRS has not provided oficial guidance about it while there are plenty of folks running into issues with errors in forms and missing deadlines. Has anyone run into problems with IRS by reporting TFSA using FBAR forms but not declaring it a trust?

Thanks in advance for your time!

nelsona
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Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by nelsona » Mon Jan 28, 2019 1:08 pm

Lots of half right steps
None exactly right
I’ll try to help when I can....,
Nelsona Non grata. Non pro. Search previous posts.

nelsona
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Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by nelsona » Mon Jan 28, 2019 3:34 pm

So, I'll just go down each point and correct, clarify.

1. Your date should be the one you went down to work on. Hrs should be the date she left to join you.
2. Along with your 216 return, you should already be having monthly withholding sent to CRA. You will likely incur a penalty for not having done so since mid-year. 216 is merely to finalize this process, not start it.
3. Your Cdn employment income will be included on your departure return. It is not a separate return, Only 216 is separate.

4. Your 1040 will include ALL income for the year. the only income that can be exclude=d by 2555 is your and her wages from BEFORE you entered US. The wages you were paid after entering US are not eligible for 2555. You will need to use 1116 to get tax credit for the Cdn tax on that portion of income.
5. Correct. Except that for the mat benefits paid after leaving Canada, the NR tax is the correct tax, which is 25% flat, that portion should not be reported on her Cdn return. she may need to send a separate letter and a cheque to CRA for that.
6. For all income other than the wages excluded by 2555, you will need to determine the pre-departure and NR taxes and use these as credit. Use the amounts you actually owe, not what might have been withheld. You may have 2 or 3 categories which this income may fall under, each requiring a separate 1116. for rental income, remember that in US you MUST depreciate your asset, while in Canada you *can* but are not required, you may have to start depreciating in Canada in order to mesh the taxes better.
7. The step up rules do not apply to your rental property, since it was not subject to deemed disposition when you left Canada (unless you make a special election in Canada to do so, which is not always advisable). It will simply remain Cdn taxable property, on which you will pay Cdn tax and US tax, taking credit for the Cdn tax, when you sell. The Rev Proc that you will describe on 8833 will only be your non-real estate investments

a) no. you are actually over-simplifying things.
b)see above
c)you will only have 2. Mnay have done this in departure year with rental.
d) 8833 is just a form, You are discussing Rev Proc 10-19. See the rev proc. Deferring payment in Canada does not affect the use of rev proc.
e) Be consistent. If you decide not to file 3520, then continue like that until IRS advises otherwise. If you decide to 3520, then keep doing so, until clarification is made.
Nelsona Non grata. Non pro. Search previous posts.

CadCad
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Joined: Mon Jan 28, 2019 12:18 am

Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by CadCad » Sat Feb 02, 2019 1:31 pm

Regarding T1159 Income Tax Return for Electing Under Section 216, given Nelsona's feedback I decided to call CRA to find out the exact steps I needed to follow to correct my status. Leaving them here for other who run into this as well:

1-Create a non resident account with CRA, link available in CRA My account
2-Calculate the gross rent received after becoming a non resident of Canada
3-Using CRA my payment submit as soon as possible (in my case since I was catch up with rents received in 2018) 25% of the gross rent, CRA reserves the right to collected penalties and interest based of how long payments were due
4-Send a letter to CRA Sudbury tax processing center asking them to issue an NR4, providing your gross rent collected and payment submitted
5-Wait for the letter to come back, might take up to 3 months
6-Submit section 216 return including NR4

Every subsequent year, submit monthly payment of 25% of gross rent by the 15 of the month after collecting rent, in December after sending the last payment send a letter to CRA asking for the NR4, rinse and repeat...

Note this is if you are managing the process yourself, you can appoint an agent (usually a property manager) that can handle this process for you and if they get an NR6 they can submit 25% of net rent vs gross rent.

CadCad
Posts: 9
Joined: Mon Jan 28, 2019 12:18 am

Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by CadCad » Sat Feb 02, 2019 1:35 pm

Hi Nelsona,

Thank you for your response and all the knowledge you have been sharing through this forum over the years.

Couple of follow up questions if you don't mind:

While I'm at "determine the pre-departure and NR taxes and use these as credit" should I:
1-include EI/CPP premiums paid from my Canadian employment income?
2-for all the non wage income, claim credit equal of my CAD tax liability when stacking those income sources on top of my employment income (ie. my CAD marginal rate after including only my employment income)?

For my departure tax, are these the forms I should be filling? Missing any?
T1 + Provincial equivalent and related schedules we file as regular Canadian residents
T1159 Section 216
T1161 List of Properties by an Emigrant of Canada,
T1243 Deemed Disposition of Property by an Emigrant of Canada
T1244 Election to Defer the Payment of Tax on Income Relating to the Deemed Disposition of Property
No need for Form T1248 since that's for non resident returns, not for departure returns, right?

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by nelsona » Sat Feb 02, 2019 3:14 pm

You should appoint an agent, it can be a friend, and you should file an NR6.

For your exit return, you will be filing the return for your province, with a departure date. You report all the deductions you are normally entitled to, there is a formula which will decide how much of them you are alloed (you will, of course, be using software, which will take care od all the other mechanical questions you asked).

As for creit of Cdn tax on your US return, you CANNOT take credir for marginal taxrate, always effective rate. so 100K of income, including $10K of non-wage, 90% of total tax is assigned to wages, 10% tax assigned to non-wage income (plus CPP/EI premiums assigned to wages)
Nelsona Non grata. Non pro. Search previous posts.

CadCad
Posts: 9
Joined: Mon Jan 28, 2019 12:18 am

Re: Canadian with US income + rental + CAD resident emp income + CAD non resident income + Maternity income. Oh my!

Post by CadCad » Thu Feb 14, 2019 12:08 am

Hi Nelsona, quick follow up on point 7, since "step up rules don't apply to rental property" what do you think should be the acquisition price used to calculate USA cap gain when the property is eventually sold while being a USA resident?

A few options come to mind:

1) the original acquisition price (while I was a Canadian resident with no links to USA)?

2) adjusted cost base that would be used to calculate capital gains in the Canadian return when sold? (which includes all the depreciation and capital improvements claimed while still a resident of Canada)

3) the fair market value on immigration date?

I assume this "acquisition price" is what should be used in the first USA return and then start adjusting by CCA from that point onward, right?

Bonus question if I might, would the answer change if the property was in USA vs Canada?

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