US/Canada Returns

Badger · Post by **Badger** » Sat Feb 03, 2007 4:08 pm

I was resident and working in the US last year until June 1, 2006 when I and my wife/family returned to Canada. Prior to leaving the US I obtained my "sailing permit". Both my wife and I filed US returns in 2005 (married filing jointly) and for part of 2004 (we starting living and working in the US in september 2004) and have been non-resident canadians since 1999 having lived in the Cayman Islands until moving to the US for work.

I started work in Canada in July 2006. My wife has had no employment income since we left in 1999 as she has been home with the kids.

What returns do I need to file in the US? I still have ongoing US investment income (interest and dividend from stocks and term deposits). Also my accountant failed to claim for my canadian RRSP in 2004, 2005 and 2006 US filings. How do I correct this? What US returns will I need to file going forward for the investment income and how do the reciprocal tax treaties between Canada and US work for this sort of thing? At present there are no deductions at source for my US investment income.

Thank you for your thoughts

Sun Feb 04, 2007 8:01 am

For 2006, your year of departure from the U.S., you need to file individual "dual status" returns. On these returns you must file separately, and must itemize deductions. The standard deduction is not available to you.

You should also file form 8891 or an election under Rev. Proc. 2002-23 for any years in which you did not disclose your RRSP's. See other posts on this topic.

You should also check to see if your bank/brokerage accounts have been reported on form TDF 90.22.1, since there are serious penalties for failure to file this form.

On a go forward basis, if you are a resident of Canada with only investment income from the U.S., you will not need to file a U.S. return at all. (Note that you were deemed to have acquired your capital properties at fair market value on the date of your entry to Canada, and the U.S. has no "departure tax". You may have a tax free capital gain on your unrealized gains accrued while a U.S. resident.

Badger · Post by **Badger** » Sun Feb 04, 2007 10:02 am

Thank you. I believe that the TDF 90.22.1 was provided in my schedules so that is fine but I will need to address the 8891 and presumable refile.

One quick follow up. For the period of time I was in the US in 2006 I file a 1040 dual status individual filing but do I also need to file a 1040NR for that portion of 2006 that I was out of the US for which I had investment income?

Thanks

nelsona · Post by **nelsona** » Mon Feb 05, 2007 12:59 am

Most pepole leaving the US find it better to file a full-year 1040, excluding their post-departure foreign wages using form 2555. Dual-stats will usually yeild a higher US tax.

maricami · Post by **maricami** » Mon Mar 05, 2007 6:57 am

[quote="nelsona"]Most pepole leaving the US find it better to file a full-year 1040, excluding their post-departure foreign wages using form 2555.[/quote]

I am in a similar situation as Badger. I moved back to Canada July 2006. I am planning to file a full-year 1040 combined with form 2555 to exclude my wages after my return to Canada.

But here's where I'm confused, since my return to Canada I have been working for a US company from my house. I am not sure if I can still use 2555 ? Is this US income still considered as foreign wages ???

nelsona · Post by **nelsona** » Tue Mar 06, 2007 6:47 am

The US firm should be paying you as a Cdn employee, or as a contractor. I would get this straightened out before too long.

Nevertheless, the wages earned while living in Canada do qualify for 2555.

maricami · Post by **maricami** » Tue Mar 06, 2007 8:35 am

I am working as a contractor (no withholdings on my paycheck). Would it make a difference if I was an employee?

nelsona · Post by **nelsona** » Tue Mar 06, 2007 6:31 pm

No, just that some employees who return to canada, remain on US payroll which is incorrect.

maricami · Post by **maricami** » Thu Mar 08, 2007 4:13 am

I have another similar question, but for my Canadian taxes this time. Do I have to exclude my US income I earned before moving back to Canada ?

I thought all I had to do is to enter my entry date on my Canadian taxes. I am using Quick tax Web to do it and when I enter my entry date, I suddenly owe a lot more money ! And that's happening even if I enter that my wages before coming back Canada is 0$. When I actually enter my wages from the US, it's a lot worse !!! Is this normal ? Why is it taking into account what I earned prior to re-entry ???

nelsona · Post by **nelsona** » Thu Mar 08, 2007 7:41 am

If you are filing a newcomer return, then you do not report any foreign income from before entry date.

Your personal exemption is pro-rated, thus accounting for the higher tax when you put the entry date

maricami · Post by **maricami** » Thu Mar 08, 2007 9:55 am

Thanks Nelsona !

Do I have to do anything special to indicate that this is a newcomer return ? Is simply writing the re-entry date in the software enough ?

nelsona · Post by **nelsona** » Thu Mar 08, 2007 10:00 am

The entry date IS the way.

maricami · Post by **maricami** » Thu Mar 08, 2007 10:02 am

Great ! Thanks for all the help.

maricami · Post by **maricami** » Fri Mar 09, 2007 9:13 am

On form 2555, Should I select the Bona Fide test or the Phisical presence test ? Thanks.

nelsona · Post by **nelsona** » Fri Mar 09, 2007 9:59 am

You won't qualify for the bona fide test until you have lived in canada for a full jan-Dec calendar year, so the PPT is more likely to be your easiest test.