Hello Nelsona,
In a recent post you made to a thread regarding dual tax filing, you mentioned the following:
"I think is is a good practice to submit a 1040NR in the year following departure. Remember, Cdns don't have to file a 1040-C 'Sailing permit', which would be the best (though laborious) way to indcate departure from US. 1040NR the following year fits nicely."
I was wondering if you could elaborate on this statement about canadians not being required to file a 1040-C "Sailing Permit." This is an issue I have been wondering about with respect to the situation my wife and I find ourselves in. I am US citizen, now a PR of Canada (as of June 2005). My wife is Canadian, and was a Green Card holder from January 1999 up to June 2005, when we made the decision to move to Canada permanently. She gave up her GC in November 2005.
For the 2005 tax year we are filing a joint 1040, with the 2555EZ to exclude her income earned in Canada in the second half of 2005 (I had no income for that time as I'm a student). My questions are about 2006 and future years. As a US citizen I of course will keep filing a 1040 (I assume status would be married filing separately). But what about my wife? We have no intention of moving back to the US, we have no US source income, and so how do we "free" my wife from filing US taxes? Is it as simple as her no longer filing, or should she file a 1040NR with all zeroes for 2006, or should she have filed a 1040-C?
I have been confused reading some of the IRS publications (i.e., Publ. 519, chapter 11) about whether she was supposed to file the 1040-C "Sailing Permit" when she left the US. Also, their publication seems to say that to disengage herself from filing US taxes she as to: 1) give up her green card, and 2) file form 1040-C.
Sorry for the rambling post. Our goal basically is for my wife not to file taxes beyond the 2005 year. What is the best way to do this? And if Canadians don't have to file the 1040-C, where can I find out about this provision?
Thanks,
KNP
1040-C "Sailing Permit" Question
Moderator: Mark T Serbinski CA CPA
I would simply file a 1040NR for her next year.
I wouldn't be too quick on wanting her to free her from the IRS. If you begin to earn US-source income, or when you make large cap gains, or when you collect a pension, you will find it most handy to file a joint return to avoid a hefty US tax bill.
Also, if you have any children, joint filing and using 1116 will get you a free $1000 for each child from the IRS.
It wouldn't be too hard for her to have kept her GC in your circumstances, and if I were counselling her, I would be suspicious of your haste to divest her of a legal staus into US.
I would be advising her that this would make it very easy for you to 'flee' back to US
I wouldn't be too quick on wanting her to free her from the IRS. If you begin to earn US-source income, or when you make large cap gains, or when you collect a pension, you will find it most handy to file a joint return to avoid a hefty US tax bill.
Also, if you have any children, joint filing and using 1116 will get you a free $1000 for each child from the IRS.
It wouldn't be too hard for her to have kept her GC in your circumstances, and if I were counselling her, I would be suspicious of your haste to divest her of a legal staus into US.
I would be advising her that this would make it very easy for you to 'flee' back to US
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Nelsona,
Thank you, I think, for your reply.
I do not have much experience in these matters, and so I guess I just assumed that it would be simpler all-around for my wife not to have to file a US tax return if we are settled permanently in Canada. Perhaps that assumption was incorrect, or at least too "hasty." (To take your example of a pension: down the line, what advantage would filing jointly have versus my filing separately? We've both been students so long that we have little experience in retirement planning, so I'm sorry if the question seems too elementary. I had actually thought that, now that she has just gotten a job as a professor, it would be simpler for her not to have to file US taxes, form 8891, etc. Perhaps we should rethink this...
As to your other comments regarding my wife giving up her GC: WE decided last year that in we couldn't in good conscience say that we'd return to the US within 2 years, so she gave up her GC. It was not a decision made in "haste." We wanted to look for academic jobs in Canada and settle in Canada permanently. I love Canada and I certainly love my wife.
I find it very sad that our attempt to do the right and honest thing in my wife giving up her GC would somehow be read so cynically...
Thank you, I think, for your reply.
I do not have much experience in these matters, and so I guess I just assumed that it would be simpler all-around for my wife not to have to file a US tax return if we are settled permanently in Canada. Perhaps that assumption was incorrect, or at least too "hasty." (To take your example of a pension: down the line, what advantage would filing jointly have versus my filing separately? We've both been students so long that we have little experience in retirement planning, so I'm sorry if the question seems too elementary. I had actually thought that, now that she has just gotten a job as a professor, it would be simpler for her not to have to file US taxes, form 8891, etc. Perhaps we should rethink this...
As to your other comments regarding my wife giving up her GC: WE decided last year that in we couldn't in good conscience say that we'd return to the US within 2 years, so she gave up her GC. It was not a decision made in "haste." We wanted to look for academic jobs in Canada and settle in Canada permanently. I love Canada and I certainly love my wife.
I find it very sad that our attempt to do the right and honest thing in my wife giving up her GC would somehow be read so cynically...
As I said, if I were in the position of advising her, I would have counselled her against getting rid of GC. In fact, forget GC ....
I probably would have even insisted she get her US citizenship before leaving since she was clearly eligible. I would have told her she was crazy not to have gotten citizenship on day 1 of her 6th year of GC. or 4th year of marriage.
Putting any far-in-the-future custody battle, even if your current love for Canada, and your spouse stands the test of time... you won't. When you die and leave your fortune to your Cdn wife, your US estate taxes could be very high, where they would have been non-existent if she were a US citizen.
Just so you don't get the idea I'm picking on you:
EVERYONE who is married to a US citizen should get their US citizenship as soon as they are entitled to and at the very least, do so BEFORE leaving the US permanently. It protects you, protects your kids, and protects your estate.
By the way, how did she rescind her GC? IRS only accepts official recission, so be careful. They can continue to claim taxation of her world income, even if she 'loses' her GC status. I would contact IRS and ask what official document they want to prove recission.
You will be filing US taxes forever; only your Cdn wages can be excluded from tax right now. Eventually, the exclusion may dissapear altogether, like it almost did 3 years ago. Then you will be subjest to tax on all your income, and the married filing separate rate is actually higher than Cdn taxrate, so she will be reporting her income on your 1040 just like a US citizen, with none of the rights.
I probably would have even insisted she get her US citizenship before leaving since she was clearly eligible. I would have told her she was crazy not to have gotten citizenship on day 1 of her 6th year of GC. or 4th year of marriage.
Putting any far-in-the-future custody battle, even if your current love for Canada, and your spouse stands the test of time... you won't. When you die and leave your fortune to your Cdn wife, your US estate taxes could be very high, where they would have been non-existent if she were a US citizen.
Just so you don't get the idea I'm picking on you:
EVERYONE who is married to a US citizen should get their US citizenship as soon as they are entitled to and at the very least, do so BEFORE leaving the US permanently. It protects you, protects your kids, and protects your estate.
By the way, how did she rescind her GC? IRS only accepts official recission, so be careful. They can continue to claim taxation of her world income, even if she 'loses' her GC status. I would contact IRS and ask what official document they want to prove recission.
You will be filing US taxes forever; only your Cdn wages can be excluded from tax right now. Eventually, the exclusion may dissapear altogether, like it almost did 3 years ago. Then you will be subjest to tax on all your income, and the married filing separate rate is actually higher than Cdn taxrate, so she will be reporting her income on your 1040 just like a US citizen, with none of the rights.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
What about the possiblity of KNP becoming a Canadian citizen and giving up US citizenship. I know that it is not easy or may not be desirable if KNP has a lots of assets. If his net worth were say $250K or less, and he truly believed be would not ever wish to live in US again, shouldn't he consider this.
joe
That's crazy talk. 
Even the most stauch Cdn yankee-haters actually visit US from time to time, even if they have no family in US. Once he formally renounced US citizenship, KNP would not be able to even visit!
I imagine his future kid's grandparents probably live in US, and his wife thought enough of US to spend nearly a decade there.Now, your suggesting the next time he would be allowed to go back was in a pine box!
Is one thing if you are going to move to Nepal, but to live 30 minutes from your homeland and not be able to go in for the weekend, seems like a rather inconvenient position to take.
There is no good tax reason for a US citizen living in Canada to give up citizenhip. In fact, he will soon, if he has kids, be collecting a cool grand each for each one of them from Uncle Sam.
Even the most stauch Cdn yankee-haters actually visit US from time to time, even if they have no family in US. Once he formally renounced US citizenship, KNP would not be able to even visit!
I imagine his future kid's grandparents probably live in US, and his wife thought enough of US to spend nearly a decade there.Now, your suggesting the next time he would be allowed to go back was in a pine box!
Is one thing if you are going to move to Nepal, but to live 30 minutes from your homeland and not be able to go in for the weekend, seems like a rather inconvenient position to take.
There is no good tax reason for a US citizen living in Canada to give up citizenhip. In fact, he will soon, if he has kids, be collecting a cool grand each for each one of them from Uncle Sam.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing