Stock Losses in US carried over to Canada

[dac]

Here is my situation. I moved from the US to Canada. I have stock losses accumulated while I was in the US and some after I came to Canada. Where would I account for it?

3 different scenarios, all transacted in US brokerages.
1) Bought in the US and Sold before I came to Canda in the year I came to Canada
2) Bought while in the US and sold after I came to Canada
3) Bought while in Canada and sold while in Canada in US brokerage.

Currently I am a resident of Permanent Canada and do not have any other ties to the US.

Also I have filed my taxes in Canada without taking into consideration these losses. Can they be rectified, or do they have to be rectified?

Thanks

David.

[nelsona]

When you move to Canada, for Cdn tax purposes, all your investments are considered to have been sold and repurchased the day you moved.

So, with that principle in mind:

1). Has no bearing on Cdn tax return. It never existed.
2). The capital gains or losses are determined from the value the day you arrived and the proceeds when selling.
3). this is reported the same as if it were a Cdn broker.

For US taxes, only the gains and losses that occured as a result of sales made before becoming non-resident are reported on your 1040 (the part-1040 you do for your departure year.
So only the loss from scenario (1) is reported in Us.

Moral: Sell losers beforeleaving US, winners after.

[dac]

Thank you for the reply. I have filed a couple of years in Canada without including the losses in Canada. Is it possible to correct that?

If so, do I contact you or Mark?

Thanks

David.

[nelsona]

when my signature says non pro, that is what it means.

[Carson]

Thank you for the reply. I have filed a couple of years in Canada without including the losses in Canada. Is it possible to correct that?

If so, do I contact you or Mark?

Thanks

David.

Yes, you can file 1040X's (amended 1040) to include the sales and carryforward the losses, subject to claiming part of the loss annually against other income.

Mark could help you.

[nelsona]

I think he was referring to ammending his Cdn returns (since that would be where the losses would be reported), which would be done by filing a T1-ADJ for the year(s) in question.

[Carson]

But of course he was. D'oh!

[dac]

I will contact Mark to correct my Canadian Taxes.

I understand that I do not need to file any US 1040s after I moved here even though I sold those stocks in a US brokerage? Am I correct?

How do I tell IRS that I do not need to file US 1040s since I am filing in Canada. IRS asked me to file US taxes since I sold stock in US brokerage.

Thanks.

[Mark T Serbinski CA CPA]

Here is an interesting point to note for (non U.S. citizen) Canadians temporarily in the U.S.:

Let's say you buy stocks in the U.S. while you are a non resident of Canada, and over time, the stocks appreciate in value. When you move back to Canada you are deemed under Canadian law to have acquired the stocks for fair market value on the date of your (re) entry to Canada. That means that if you sell the stocks the next day, in Canada you would pay little or no capital gains tax (since the selling price would be close to the appreciated market value on your entry to Canada.)

You would also not pay any tax in the U.S. since:
a) You will no longer be a resident of the U.S., and the U.S. only taxes residents; and
b) The U.S. has no "deemed disposition" rule as Canada does, on departure.

Result: No tax on the capital appreciation, anywhere !

[nelsona]

Thus my oft-stated motto (for 6 years now) and already stated in this thread:

Sell losers before leaving US, winners after.

[dac]

Thank you Mark and nelsona for the replies.

I still have two questions.

1) I understand that I do not need to file any US 1040s after I moved here even though I sold those stocks in a US brokerage? Am I correct? BTW, all of them are losses.

2) How do I tell IRS that I do not need to file US 1040s since I am filing in Canada. IRS asked me to file US taxes since I sold stock in US brokerage.

Thanks

David.

[nelsona]

The sales are not reportable in US.

The IRS assumes that anyone who files 1040 will do so indefinitely, as this is the obligation of US citizens and permanent residents.

You can either respond to the letter by stating that you are neither a US citizen or Green card holder (assuming you're not) and that you have established a tax home in Canada since dd/mm/yyyy.

Your alternative would be to file a 1040NR with '0' income, since any cap gains or losses from sales occuring after the departure would not be 'effectively connected' income in US.