US Citizen Moving to Toronto
Moderator: Mark T Serbinski CA CPA
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- Posts: 10
- Joined: Tue Mar 01, 2005 6:36 pm
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>
I said that CRA on a case-by-case basis is granting permission to defer the tax that they legally owe every year.
That is not quite the same thing.
You are asking CRA for a favour. That favour may come with strings or it may not (like no contributions, like exit tax). You wil have to see. This could end, they could call you up and say pay tomorrow. Until the treatment is entrenched in the treaty you are at risk.
It is certainly not unheard of for CRA to permit deferral of the payement of tax until after one leaves canada and is no longer 'taxable' in Canada. One generally has to post securities until such time as the tax is paid. They don't simply foget about the tax.
As to deemed disposition tax, you have a lot to learn about Cdn taxation. All departing Cdn residents are taxed as if they disposed as if they sold up on the day they left. Only a very few certain things are exmpt from this (house, RRSP, Cdn private business). Foreign assets are not excluded from Cdn taxation, nor from deemed disposition tax.
When you move to Canada you will be deemed to have aquired everything on that day too (deemed acquisition).
<i>nelsona non grata</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I apologize for my ignorance on Canadian taxation, but this is the first time in my life it's ever been an issue for me. All of my issues are related to treatment of Roth IRAs, whether or not I should continue to make contributions to it, and whether or not I can still take advantage of the earnings being tax free by moving back to the United States.
Are you telling me that if I'm granted permission to defer taxes on my Roth IRA earnings, the taxes on my Roth IRA income would accrue until after I withdraw the funds whether I'm still in Canada or not?
And are you also saying that I'd be taxed on any investments I hold if I were ever to leave Canada as though I sold them all as of the date I'd leave? If that were the case, I'd be taxed on it twice - once when I'd leave Canada, and once when I actually sell the investments in the USA.
Again, I'm an American CPA, but I've never had to deal with Canadian tax issues before.
I said that CRA on a case-by-case basis is granting permission to defer the tax that they legally owe every year.
That is not quite the same thing.
You are asking CRA for a favour. That favour may come with strings or it may not (like no contributions, like exit tax). You wil have to see. This could end, they could call you up and say pay tomorrow. Until the treatment is entrenched in the treaty you are at risk.
It is certainly not unheard of for CRA to permit deferral of the payement of tax until after one leaves canada and is no longer 'taxable' in Canada. One generally has to post securities until such time as the tax is paid. They don't simply foget about the tax.
As to deemed disposition tax, you have a lot to learn about Cdn taxation. All departing Cdn residents are taxed as if they disposed as if they sold up on the day they left. Only a very few certain things are exmpt from this (house, RRSP, Cdn private business). Foreign assets are not excluded from Cdn taxation, nor from deemed disposition tax.
When you move to Canada you will be deemed to have aquired everything on that day too (deemed acquisition).
<i>nelsona non grata</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I apologize for my ignorance on Canadian taxation, but this is the first time in my life it's ever been an issue for me. All of my issues are related to treatment of Roth IRAs, whether or not I should continue to make contributions to it, and whether or not I can still take advantage of the earnings being tax free by moving back to the United States.
Are you telling me that if I'm granted permission to defer taxes on my Roth IRA earnings, the taxes on my Roth IRA income would accrue until after I withdraw the funds whether I'm still in Canada or not?
And are you also saying that I'd be taxed on any investments I hold if I were ever to leave Canada as though I sold them all as of the date I'd leave? If that were the case, I'd be taxed on it twice - once when I'd leave Canada, and once when I actually sell the investments in the USA.
Again, I'm an American CPA, but I've never had to deal with Canadian tax issues before.
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- Joined: Tue Mar 01, 2005 6:36 pm
With these "deemed disposition" tax rules, are you telling me that I'd be taxed on any investment I owned as of the day I'd leave Canada, and then be taxed on it again in the future when they're sold while I'm a resident of the USA? It doesn't make much sense to me that I'd be taxed on the same investments and gains twice.
It sounds to me like there's just no way for me to take advantage of the tax free growth of a Roth IRA, and I'm finding it very frustrating.
It sounds to me like there's just no way for me to take advantage of the tax free growth of a Roth IRA, and I'm finding it very frustrating.
You have to keep in mind that taxation regimes are not necessarily fair and equitable in all situations. Also, neither Canadian nor US authorities are all that interested in harmonizing their two, in some respects quite different, systems. They have more important domestic issues. This is one of the disadvantages of moving abroad.
It would not be simply a case of applying deemed disposition rules to get the tax money owed (the obvious way around that being to trade around all your Roth investements a few eeks before leaving Canada, thus making the capital gains on deparure very small).
Canada would also no doubt just demand an accounting for all the tax you owed on Roth when you left as part of your agreement.
as to rhollan's assertion that "the U.S. does not permit deferal on RRSP earnings on contributions made in the U.S., only earnings on capital already in the RRSP upon arriving in the U.S.", this is no longer true.
Rev Proc 2002-23 removes any distinction as to whether a contribution is made while a US resident or not (the old rev proc did).
So any RRSP, whether contributed before arrival in US, after arrival in US, or both, is entitled to full deferral. And these contributions are still added to the 'basis' of the plan. Form 8891 even has a line for indicating the yearly contributions.
On meshing of deemed disposition with future cap gains taxes. CRA and IRS have established procedures currently in place to deal with this.
For US citizens, CRA will retroactively give credit for any US tax paid (upon true disposition) on the portion of the gain earned in Canada on the departure years return (no time limit on this).
For non-US citizens leaving Canada and going to US, US has agreed (since sept 18, 2000) to allow one to use the deemed disposition value as a new cost basis.
The effect is generally cap gains is not doubel taxed.
And if you think this isn't fair for US citizens get this stubacca:
US residents (non-US citizens) who leave US and move to Canada get to take the US-period cap gains COMPLETELY tax-free if they dispose of them after leaving US. that is because US/Canada will only tax non-US citizens cap gains in the country of residence, and Canada considers all investments to be sold and bought immediately before arrival.
So I, when I return to Canada, can have a portfolio with a cost basis of $10K and a FMV of $200K and 2 weeks later, sell up and keep every nickel of my $200k. And this falls below any long-term US resident expat tax threshhold so don't bother thinking about that
That's the privilege of not being a US citizen.
<i>nelsona non grata</i>
Canada would also no doubt just demand an accounting for all the tax you owed on Roth when you left as part of your agreement.
as to rhollan's assertion that "the U.S. does not permit deferal on RRSP earnings on contributions made in the U.S., only earnings on capital already in the RRSP upon arriving in the U.S.", this is no longer true.
Rev Proc 2002-23 removes any distinction as to whether a contribution is made while a US resident or not (the old rev proc did).
So any RRSP, whether contributed before arrival in US, after arrival in US, or both, is entitled to full deferral. And these contributions are still added to the 'basis' of the plan. Form 8891 even has a line for indicating the yearly contributions.
On meshing of deemed disposition with future cap gains taxes. CRA and IRS have established procedures currently in place to deal with this.
For US citizens, CRA will retroactively give credit for any US tax paid (upon true disposition) on the portion of the gain earned in Canada on the departure years return (no time limit on this).
For non-US citizens leaving Canada and going to US, US has agreed (since sept 18, 2000) to allow one to use the deemed disposition value as a new cost basis.
The effect is generally cap gains is not doubel taxed.
And if you think this isn't fair for US citizens get this stubacca:
US residents (non-US citizens) who leave US and move to Canada get to take the US-period cap gains COMPLETELY tax-free if they dispose of them after leaving US. that is because US/Canada will only tax non-US citizens cap gains in the country of residence, and Canada considers all investments to be sold and bought immediately before arrival.
So I, when I return to Canada, can have a portfolio with a cost basis of $10K and a FMV of $200K and 2 weeks later, sell up and keep every nickel of my $200k. And this falls below any long-term US resident expat tax threshhold so don't bother thinking about that
That's the privilege of not being a US citizen.
<i>nelsona non grata</i>
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- Posts: 10
- Joined: Tue Mar 01, 2005 6:36 pm
I expect you're right as always, Nelson, re tax harmonization.
I was really just trying to point out that although democratic governments tend to aim for some ideal of fairness in tax codes and other laws, this is not always achieved and it's certainly not obligatory. Sometimes people write like they're a bit shocked by this.
For example, I regretfully doubt that allowing Canadian residents to manage their RRSPs is anywhere near the top of my state government (Georgia)'s priority list.
I was really just trying to point out that although democratic governments tend to aim for some ideal of fairness in tax codes and other laws, this is not always achieved and it's certainly not obligatory. Sometimes people write like they're a bit shocked by this.
For example, I regretfully doubt that allowing Canadian residents to manage their RRSPs is anywhere near the top of my state government (Georgia)'s priority list.