Capital gains for a Canadian non-resident

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godefroy
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Joined: Wed Jan 30, 2019 2:13 pm

Capital gains for a Canadian non-resident

Post by godefroy » Wed Jan 30, 2019 2:22 pm

Hi, I'm a US citizen & resident, a Canadian citizen & non-resident. In 2018 I sold mutual funds for which I have received a T5008 form from the CRA. This form indicates a higher number in Box 21 (Proceeds of distribution) than in Box 20 (Cost or book value). I understand this to represent a positive capital gain. Note that the form also indicates no tax has been withheld by the broker (i.e. I have not paid any tax to Canada on this gain).

I am familiar with the requirement to declare these capital gains on my US tax declaration.

I would like to know whether I first need to pay some tax to Canada (does the fiscal convention between US & Canada specify a rate?) and whether I need to file a Canadian declaration for this purpose. If tax is owed to Canada, I expect to be able to report it as foreign tax paid on my US return.

godefroy
Posts: 6
Joined: Wed Jan 30, 2019 2:13 pm

Re: Capital gains for a Canadian non-resident

Post by godefroy » Wed Jan 30, 2019 2:25 pm

Correction: I received the T5008 from the broker and not from the CRA (obviously :)).

I've called the CRA help line for non-residents to inquire but wasn't able to get definitive answer as the agent couldn't find any information relating to capital gains.

nelsona
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Re: Capital gains for a Canadian non-resident

Post by nelsona » Wed Jan 30, 2019 4:27 pm

I'm going to assume you lived in Canada at some point when you owned these shares.

Since you owned these when you left Canada (?), you would have declared these on your departure tax return as a deemed disposition. Once that is done, you are no longer taxable on further gains. Your broker should also have been informed by you that you were US resident.

You would use the deemed value to determine your US tax, by following the rules in Rev Proc 10-19, which you would have filed with IRS when you left Canada.
make sure you have accounted for other income related to these funds, like dividends and cap gains distributions in previous years.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

godefroy
Posts: 6
Joined: Wed Jan 30, 2019 2:13 pm

Re: Capital gains for a Canadian non-resident

Post by godefroy » Sat Feb 02, 2019 6:46 pm

Thanks for your eye opening reply.

I moved & became a US resident on Jan. 1st, 2011. Shares were bought in 1/2014, but my Canadian non-resident status wasn't communicated to them until 9/2015. I have since then been declaring dividends & cap. gains on my US return (from the NR4 & 1099-DIV forms). For 2014 and & 1-9/2015, I manually computed tax owed to Canada and sent a check to the CRA.

While I have notified the CRA of my non-residency status as of 1/1/2011 in 2011, I have never filed a "departure tax return". I also didn't file anything with the IRS regarding these shares outside of reporting the yearly NR4, 1099-DIV & filing the FBAR.

Sounds like I need an appointment. Agree?

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Re: Capital gains for a Canadian non-resident

Post by nelsona » Sat Feb 02, 2019 8:34 pm

For such a small thing, no.

Obvioulsy Canada has accepted your non-res status, so why open that back up. You should only have paid 10% dividend tax to Canada all these years, withheld at source. If you fixed the period when they thought you were resident, you are fine.

So, now you just have to determine the cap gains tax in US, like anybody else, increasing the cost basis with the taxable distributions you've had over the years.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

godefroy
Posts: 6
Joined: Wed Jan 30, 2019 2:13 pm

Re: Capital gains for a Canadian non-resident

Post by godefroy » Sat Feb 02, 2019 9:10 pm

I've indeed had dividend tax withheld at source since 2015, though at a 15% rate (which seems accurate based on "Article X" from https://www.fin.gc.ca/treaties-conventi ... is-eng.asp).

I take it then that I do not owe any capital gain tax to Canada, and do not need to produce a Canadian tax return. Please correct me if I'm wrong.

I am left with a last concern:

The T5008 indicates a capital gain (~10%) (side-note: I haven't yet determined if the cost basis they used includes re-invested taxable distributions). However, the parallel 1099-B form indicates a significant loss. I attribute this difference to the exchange rate variation over the years. Proceeds of the sale are still in CAD and I have no immediate plan to convert this to USD. It feels wrong to declare a loss on my US tax return if I end up converting to USD years down the road at a better exchange rate. Any special procedure around this?

Thanks, and I'm happy to come in and pay for your service if recommended.

nelsona
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Re: Capital gains for a Canadian non-resident

Post by nelsona » Sun Feb 03, 2019 9:48 am

15% on dividends, correct.

Whether or not you bring the proceeds to US, or you convert them to USD, all transactions with IRS are conducted in USD, at the rate in effect at the time of each conversion. That would seem to explain the difference between T5008 and 1099. Fortunately, you don't care about the T5008.

So, as I said, you are left to ensure that you have calculated your basis correctly over the years, based on taxable distributions, etc -- a typical headache for cross-border investors.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Capital gains for a Canadian non-resident

Post by nelsona » Sun Feb 03, 2019 9:49 am

Don't feel bad, if it happened the other way. No gain in Canada and big gain in US, like in 2008/9, IRS wouldn't feel bad.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

Luciad02
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Joined: Fri Feb 08, 2019 3:47 am

Re: Capital gains for a Canadian non-resident

Post by Luciad02 » Fri Feb 08, 2019 3:49 am

nelsona wrote:
> I'm going to assume you lived in Canada at some point when you owned these
> shares.
>
> Since you owned these when you left Canada (?), you would have declared
> these on your departure tax return as a deemed disposition. Once that is
> done, you are no longer taxable on further gains [url=http://www.comparateur-mutuelle-assuran ... e-obseques]assurances obsèques[/url]. Your broker should also
> have been informed by you that you were US resident.
>
> You would use the deemed value to determine your US tax, by following the
> rules in Rev Proc 10-19, which you would have filed with IRS when you left
> Canada.
> make sure you have accounted for other income related to these funds, like
> dividends and cap gains distributions in previous years.
I see that the steps to follow are not less when it comes to making a declaration of real estate.

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