Sold Canadian Investments before departure to US - taxable on 1040?

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
allstarrevenant
Posts: 3
Joined: Tue Feb 26, 2019 4:08 am

Sold Canadian Investments before departure to US - taxable on 1040?

Post by allstarrevenant » Tue Feb 26, 2019 6:21 pm

Hi, I'm currently a Canadian citizen and will be permanently moving to the US for work around May-June 2019. I had a TFSA and a Non-Registered account (each having over 50k) which I JUST CLOSED this month (February 2019). I also have a regular chequing account at a Canadian bank (also over 50k), which I plan to close. I will have no Canadian income in 2019 other than the capital gains from these investment accounts. (about $70,000)

Since I will have moved to the US probably by June at latest, I will pass the SBT and I don't have any spouse, dependent, or property (currently live in parent's house) in Canada so I believe for the 2019 Tax Year, I am forced to file as a resident-alien with the 1040 rather than 1040NR.

- Is my assumption about being forced to file 1040 correct?
- Do I have to report the capital gains from the sale of my TFSA and Non-Registered accounts on the 1040 even though I've sold them BEFORE I moved to the US?
- I heard the TFSA isn't tax-sheltered in the US so does this mean I have to pay taxes for selling it, but wouldn't have needed to in Canada?
- Do I need to file FBAR for my Canadian TFSA and Non-Registered accounts even though I closed them BEFORE I moved to the US?
- If I'm filing the 1040 instead of 1040NR, do I still need to file a Canadian tax return for 2019? What would need to go on it? I'm assuming the capital gains of the TFSA and Non-Registered Accounts, but what about my US employment income in 2019?

It's possible I can delay my employment start date till August 2019 so that I fail the SBT, but I don't know how much help that'll be. It'd allow me to file 1040NR instead of 1040. Does this mean I'd pay the capital gains on my Canadian investment accounts to the CRA instead of the IRS? I suppose that'll allow me to pay at a lower tax bracket since I made no income in Canada. (Unless I need to report my US income on my Canadian tax return anyways, in which case I feel there's no advantage to 1040NR?)

Sorry, my thoughts are kind of all over the place as I've read a lot of info, but don't know if I'm understanding it correctly for my situation. I'd appreciate your help answering some of my questions.

nelsona
Posts: 16029
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by nelsona » Tue Feb 26, 2019 11:03 pm

1. Yes, you will have to file a 1040, or a dual-status 1040NR/1040. because of your income pre-move, it might be best to file dual-status, to avoid having to report the income and the existence of TFSA. Otherwise you would need to report all this income in US (including gains in TFSA), and get credit for the tax you pay in Canada. When you say "moving permanently", do you mean that is your ultimate goal, or that you have or are about to be issued a green card?

2. For Canada you must file departure return, with June departure date. Otherwise how would you pay the tax on your cap gains (not on the TFSA, its called tax-free for a reason)? And let them know you left Canada?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

allstarrevenant
Posts: 3
Joined: Tue Feb 26, 2019 4:08 am

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by allstarrevenant » Wed Feb 27, 2019 3:26 am

nelsona wrote:
> 1. Yes, you will have to file a 1040, or a dual-status 1040NR/1040. because
> of your income pre-move, it might be best to file dual-status, to avoid
> having to report the income and the existence of TFSA. Otherwise you would
> need to report all this income in US (including gains in TFSA), and get
> credit for the tax you pay in Canada. When you say "moving
> permanently", do you mean that is your ultimate goal, or that you have
> or are about to be issued a green card?
>
> 2. For Canada you must file departure return, with June departure date.
> Otherwise how would you pay the tax on your cap gains (not on the TFSA, its
> called tax-free for a reason)? And let them know you left Canada?

Thanks for your reply nelsona. By "moving permanently" I mean my goal is to stay in the US for the long-term; I will not have a green card for awhile, but my company will put me in the H-1B lottery this year.

So if I file dual status, does this mean I end up filing 3 tax returns this year?
1. Canadian for sale/closure of TFSA and non-registered accounts
2. 1040NR for my income while a non-resident
3. 1040 for my income while a resident.

Would I have to manually calculate at what point in the year I become a resident and then divide up my US employment income among the 1040NR and 1040? (My only source of income while in the US will be from my employer)

Also, would you happen to know if I need to report any of my former Canadian accounts to FBAR if I've closed them down before entering the US?

nelsona
Posts: 16029
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by nelsona » Wed Feb 27, 2019 7:43 am

If you meet SPT, your 1040 start date reverts back to the first day you were in US more than a certain number of days (like 10). So it is NOT the day you meet SPT, it could be Jan 1 if you were on vacation in US at that time. But for simplicity, and by treaty, you could just say it was the day you started work. Since you earned no US income before you stared work, the 1040NR would be blank.

I need to repeat since you don't seem to be getting it: TFSA transactions are not reportable in Canada. Nothing you did for your TFSA will appear on any Cdn tax return. Your 2018 Cdn return is a departure return and would include the gains you made OUTSIDE your TFSA.
For FBAR, it would be safest to all accounts, I never worry about this. Perhaps someone who does can tell you at which point your accounts require FBAR.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16029
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by nelsona » Wed Feb 27, 2019 7:43 am

and don't quote my posts in the thread, it adds nothing to the post; I know what I wrote.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

allstarrevenant
Posts: 3
Joined: Tue Feb 26, 2019 4:08 am

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by allstarrevenant » Wed Feb 27, 2019 8:14 pm

Thanks again for your help. Just to clarify, in your last reply you said "Your 2018 Cdn return is a departure return", do you mean 2019 and not 2018? I sold and closed the investment accounts in February 2019 and will leave May/June 2019.

nelsona
Posts: 16029
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Sold Canadian Investments before departure to US - taxable on 1040?

Post by nelsona » Thu Feb 28, 2019 11:06 am

Correct. 2019, filed next spring.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Post Reply