I am a Canadian citizen who moved to US on H-1B back in May 2002. At the time of moving, I owned Canadian/US stocks + mutual funds, and did not sell them. I understand that on the date of entry to US, all these investments would begin with a new cost base as far as IRS is concerned. My question is - how is the new cost base determined, is it based on:
a) market value of stocks/mutual funds on the date of entry to US, converted to US dollar based on currency exchange rate on that day?
b) I have also read somewhere in this forum that the cumulative adjusted cost base up to the date of entry may be used. (By cumulative adjusted cost base, I mean the original purchase sum + all dividends/capital gain distributions over the years up to the date of entry to US).
c) Orginal purchase sum (for those investments that have actually declined in value on the date of entry to US).
d) other methods?
Also, can one pick and choose the most advantageous method (i.e. paying least amount of tax legally) for each investment, depending on how and when that investment will be eventually disposed of in the future?
Please clarify. Thank you for the help.
clarification on new cost base for US reporting
Moderator: Mark T Serbinski CA CPA
To determine the cost basis for your investments that were held when you left Canada for the US, you would use (a) the value in US dollars on that date or (c) the original cost basis in USD when incurred. The other method you outline are incorrect.
The accumulated cost basis would only be for RRSP taxable income determination, not normal investments.
So both of these cost bases, would be the numbers you came up with for values that you used as the deemed disposition value on your Cdn departure return.
You do have those alternatives -- and this can be applied on an investement by investment basis -- to use 'normal' cost basis. This would be the cost basis you used in your deemed dispo calcualtion. Again this cost basis would have to be in US dollars determined whe nthe cost was incurred, so not the arrival date in this case.
Examples:
You bought ABC at $4C in 1995 ($3US). You move to US in 2002 when it is worth $8C ($5US). Your deemed dispo would be $4C.
Now, you sell the stock for $12C ($10US).
You have the choice of using $3US (the true cost basis) or $5US (the cost basis adjusted for deemed dispositon) in determining your IRS tax liability.
It becomes clear that you would choose the deemed value for each investment that resulted in a capital gain when you left canada, and the normal cost basis for any investemrnts that generated a loss when you left canada.
Note that when I say, 'original or normal' cost basis, I'm referring to the standard method(s) of determining cost basis, which takes into account dividends, distributions commisions etc.
Note too, that for every invesement which you elect to use the deemed valuation date, you should submit an 8833 form explaining your 'treaty position' and refering to the US canada agreement of Sept 18 2000 on determiniation of cost basis on departure from Canada.
<i>nelsona non grata... and non pro</i>
The accumulated cost basis would only be for RRSP taxable income determination, not normal investments.
So both of these cost bases, would be the numbers you came up with for values that you used as the deemed disposition value on your Cdn departure return.
You do have those alternatives -- and this can be applied on an investement by investment basis -- to use 'normal' cost basis. This would be the cost basis you used in your deemed dispo calcualtion. Again this cost basis would have to be in US dollars determined whe nthe cost was incurred, so not the arrival date in this case.
Examples:
You bought ABC at $4C in 1995 ($3US). You move to US in 2002 when it is worth $8C ($5US). Your deemed dispo would be $4C.
Now, you sell the stock for $12C ($10US).
You have the choice of using $3US (the true cost basis) or $5US (the cost basis adjusted for deemed dispositon) in determining your IRS tax liability.
It becomes clear that you would choose the deemed value for each investment that resulted in a capital gain when you left canada, and the normal cost basis for any investemrnts that generated a loss when you left canada.
Note that when I say, 'original or normal' cost basis, I'm referring to the standard method(s) of determining cost basis, which takes into account dividends, distributions commisions etc.
Note too, that for every invesement which you elect to use the deemed valuation date, you should submit an 8833 form explaining your 'treaty position' and refering to the US canada agreement of Sept 18 2000 on determiniation of cost basis on departure from Canada.
<i>nelsona non grata... and non pro</i>
Thank you very much for the quick reply.
Your example raised several other questions, some associated with tax calculation on the Canadian side as well:
a) referring to your statement "Your deemed dispo would be $4C", do you mean that as far as Revenue Canada is concerned, you are deemed to have sold at $8C, hence the capital gain would be $4C reportable to Canada.
b-1) Using your example, but let's add the assumption that ABC stock had over the years (from 1995 to 2002) distributed a total of $1C dividends (all of them reported and taxed in the year of distribution), then the adjusted cost base up to the date of entry to US would be 4+1= $5C, hence the capital gain as far as Canada is concerned would be 8-5=$3C.
b-2) Same assumptions as stated in (b-1), this time for reporting to IRS: if the $1C distribution converted to say $0.66US, would one be able to choose the new cost base as either 3+0.66 = $3.66 U.S. or $5 U.S.
c) To furhter clarify, I need only to submit 8833 when I claimed to use $5US as cost base. I do not need to submit 8833 when I claimed to use $3.66US as cost base (or $3US in your example).
Thanks.
Your example raised several other questions, some associated with tax calculation on the Canadian side as well:
a) referring to your statement "Your deemed dispo would be $4C", do you mean that as far as Revenue Canada is concerned, you are deemed to have sold at $8C, hence the capital gain would be $4C reportable to Canada.
b-1) Using your example, but let's add the assumption that ABC stock had over the years (from 1995 to 2002) distributed a total of $1C dividends (all of them reported and taxed in the year of distribution), then the adjusted cost base up to the date of entry to US would be 4+1= $5C, hence the capital gain as far as Canada is concerned would be 8-5=$3C.
b-2) Same assumptions as stated in (b-1), this time for reporting to IRS: if the $1C distribution converted to say $0.66US, would one be able to choose the new cost base as either 3+0.66 = $3.66 U.S. or $5 U.S.
c) To furhter clarify, I need only to submit 8833 when I claimed to use $5US as cost base. I do not need to submit 8833 when I claimed to use $3.66US as cost base (or $3US in your example).
Thanks.
A) Yes. You seem to be saying that when you left canada you didn't report your <u>deemed dispositions</u>? This is pretty serious for 2 reasons.
First, you haven't reported and paid tax on income, so you are deliquent on that front. But more importantly, CRA has some pretty serious asset reporting requirements for departing residents. There can be some pretty stiff penalties for not simply filling out the 'departing asset' form with your last return.
You should be looking at the "Emigrants" guide from CRA to see what you need to do. YOu might luck out, if in 2002 the penalties hadn't been finalized yet.
B1) Correct. The accounting methods for determining ACB (adjusted cost basis) are pretty straightforward, albeit sometime hard to calculate over long periods. That's why mutual fund companies provide "Average Cost" for each fund, which takes into account distributions.
B2)Correct. Remeber to calculate each component of the cost in then-current US$. For your US stocks you don't need to make any conversions for IRS purposes obviously, just for CRA.
C) correct. Using the 'normal' cost basis is just that:'normal' and isn't relying on the treaty.
So just to recap, anytime one leaves Canada for the US they need the following info:
For Cdn purposes:
ACB - adjusted cost base (using Cdn rules)
DDV - deemed disposition value on date of departure (in CAD)
For US purposes
ACB - adjusted cost base (using US rules and US dollars values for each cost.
DDV - deemed disposition value. (USD value on departure date)
But your primary concern right now should be to fix your 2002 Cdn tax return, to include deemed dispositions (both gains and losses) AND to provide QUICKLY the CRA with a list of your assets when you left.
<i>nelsona non grata... and non pro</i>
First, you haven't reported and paid tax on income, so you are deliquent on that front. But more importantly, CRA has some pretty serious asset reporting requirements for departing residents. There can be some pretty stiff penalties for not simply filling out the 'departing asset' form with your last return.
You should be looking at the "Emigrants" guide from CRA to see what you need to do. YOu might luck out, if in 2002 the penalties hadn't been finalized yet.
B1) Correct. The accounting methods for determining ACB (adjusted cost basis) are pretty straightforward, albeit sometime hard to calculate over long periods. That's why mutual fund companies provide "Average Cost" for each fund, which takes into account distributions.
B2)Correct. Remeber to calculate each component of the cost in then-current US$. For your US stocks you don't need to make any conversions for IRS purposes obviously, just for CRA.
C) correct. Using the 'normal' cost basis is just that:'normal' and isn't relying on the treaty.
So just to recap, anytime one leaves Canada for the US they need the following info:
For Cdn purposes:
ACB - adjusted cost base (using Cdn rules)
DDV - deemed disposition value on date of departure (in CAD)
For US purposes
ACB - adjusted cost base (using US rules and US dollars values for each cost.
DDV - deemed disposition value. (USD value on departure date)
But your primary concern right now should be to fix your 2002 Cdn tax return, to include deemed dispositions (both gains and losses) AND to provide QUICKLY the CRA with a list of your assets when you left.
<i>nelsona non grata... and non pro</i>
Once again thanks for the detailed reply.
You were right that I did not declare deemed disposition in the year I left. That is because I did not not file a tax return to CRA for year 2002. I did not file because I did not owe any tax.
a) I left in May 2002, but for the first 4 months of 2002 while I was in Canada, I had $0 employment income. The only other income I had for the 4 months were several hundred dollars in dividends/interest. But this amount was much less than the 1/3 (4 months/12 months) of basic personal exemption amount for year 2002. Hence, I had no tax to pay.
When in US, I did report the several hundred dollars to IRS when I filed 1040 for the entire year of 2002.
b) Regarding deemed dispostion, since I bought all the investments in year 2000 or earlier (in the middle of bull market), and when I left in 2002 (in the middle of bear market), most of the investments have since declined in value. Based on the fair market value of those assets on the day I left, when I went through the calculation on each investment, and added them up, I ended with a net capital loss. So no capital gain equates to $0 tax owed.
c) Somewhere in the Emmigrant's guide publication of 2002, I seemed to recall that there is a section that ask if one has to file a tax return? I went through that list at that time, and concluded that I
did not need to file. Since deemed disposition is always mentioned in the guide in association with the tax return, I concluded then that no reporting of deemed disposition is necessary. If CRA is to enquire about this matter later, I have my spread sheet ready to prove my case.
d)Also I did not recall about any penalty mentioned in that 2002 publication. Is this a requirement added later? Unfortuantely, I no longer have the 2002 publication, so I cannot go back to check. I may well have mis-interpreted some of the information.
e) Now that you have raised the alarm, what is my option now:
- file a 2002 tax return now, with $0 tax obligation, and hoped
for the best? In retrospect, I should have filed any way, because
there is also the advantage of locking in the capital loss,
so that in the future when I move back to Canada to work, those
capital losses may be carried forward to offset any future
captial gain. Is is too late to lock in the loss? Also, after
reading up on this forum, I should have filed a tax return if
only to put in my departure date.
- talk to International tax office, and ask for what to do now?
What kind of penalty we are talking here?
f) With respect to your last reply, you mentioned about ACB calculated using Canadian rules and US rules. What are the differences between the two rules?
Thanks.
You were right that I did not declare deemed disposition in the year I left. That is because I did not not file a tax return to CRA for year 2002. I did not file because I did not owe any tax.
a) I left in May 2002, but for the first 4 months of 2002 while I was in Canada, I had $0 employment income. The only other income I had for the 4 months were several hundred dollars in dividends/interest. But this amount was much less than the 1/3 (4 months/12 months) of basic personal exemption amount for year 2002. Hence, I had no tax to pay.
When in US, I did report the several hundred dollars to IRS when I filed 1040 for the entire year of 2002.
b) Regarding deemed dispostion, since I bought all the investments in year 2000 or earlier (in the middle of bull market), and when I left in 2002 (in the middle of bear market), most of the investments have since declined in value. Based on the fair market value of those assets on the day I left, when I went through the calculation on each investment, and added them up, I ended with a net capital loss. So no capital gain equates to $0 tax owed.
c) Somewhere in the Emmigrant's guide publication of 2002, I seemed to recall that there is a section that ask if one has to file a tax return? I went through that list at that time, and concluded that I
did not need to file. Since deemed disposition is always mentioned in the guide in association with the tax return, I concluded then that no reporting of deemed disposition is necessary. If CRA is to enquire about this matter later, I have my spread sheet ready to prove my case.
d)Also I did not recall about any penalty mentioned in that 2002 publication. Is this a requirement added later? Unfortuantely, I no longer have the 2002 publication, so I cannot go back to check. I may well have mis-interpreted some of the information.
e) Now that you have raised the alarm, what is my option now:
- file a 2002 tax return now, with $0 tax obligation, and hoped
for the best? In retrospect, I should have filed any way, because
there is also the advantage of locking in the capital loss,
so that in the future when I move back to Canada to work, those
capital losses may be carried forward to offset any future
captial gain. Is is too late to lock in the loss? Also, after
reading up on this forum, I should have filed a tax return if
only to put in my departure date.
- talk to International tax office, and ask for what to do now?
What kind of penalty we are talking here?
f) With respect to your last reply, you mentioned about ACB calculated using Canadian rules and US rules. What are the differences between the two rules?
Thanks.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"> I did not file because I did not owe any tax<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Owing tax is only one criteria for needing to file. Even getting a capital gains distribution from a mutual fund requires one to file, regardless of the amount.
And you stated that most (but not all) of your investments went down. Having one transaction which was a capital gain did indeed mean you should have filed. Looks like you tried awful hard top justify not filing, when it really was in your interst to file -- and you did have to.
The instructions do indicate that you should have notified CRA of your departure, in any event.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Also I did not recall about any penalty mentioned in that 2002 publication. Is this a requirement added later? Unfortuantely, I no longer have the 2002 publication, so I cannot go back to check. I may well have mis-interpreted some of the information.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I do have the guide for 2002, and it did (that was the first year) mention the $25/day penalty.
Remember though, that filing T1161 requires that you hold $25,000 of property and their are lots of excluded items, so you may not have been required to report. You might not have had to file this.
At this point, since you owed no tax, I would forget about it. I would also forget about trying to claim any of the deemed cap losses at this point, for use in the future if you return to Canada.
It should be pointed out for others that back in 2002 the rules for T1161 were still not finalized, but they are now. <u>Everyone now leaving Canada with more than $25,000 of investments MUST file a T1161.</u>
ACB can be differnt in US and Canada due to different ways of accounting for the buying/selling of funds/stocks. It wouldn't apply in your case unless you partially bought/sold your holdings of individual stock/funds on different days. canada requires using average cost, while US does not.
You can look that information up yourself if you wish, that is not for this space.
<i>nelsona non grata... and non pro</i>
Owing tax is only one criteria for needing to file. Even getting a capital gains distribution from a mutual fund requires one to file, regardless of the amount.
And you stated that most (but not all) of your investments went down. Having one transaction which was a capital gain did indeed mean you should have filed. Looks like you tried awful hard top justify not filing, when it really was in your interst to file -- and you did have to.
The instructions do indicate that you should have notified CRA of your departure, in any event.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Also I did not recall about any penalty mentioned in that 2002 publication. Is this a requirement added later? Unfortuantely, I no longer have the 2002 publication, so I cannot go back to check. I may well have mis-interpreted some of the information.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I do have the guide for 2002, and it did (that was the first year) mention the $25/day penalty.
Remember though, that filing T1161 requires that you hold $25,000 of property and their are lots of excluded items, so you may not have been required to report. You might not have had to file this.
At this point, since you owed no tax, I would forget about it. I would also forget about trying to claim any of the deemed cap losses at this point, for use in the future if you return to Canada.
It should be pointed out for others that back in 2002 the rules for T1161 were still not finalized, but they are now. <u>Everyone now leaving Canada with more than $25,000 of investments MUST file a T1161.</u>
ACB can be differnt in US and Canada due to different ways of accounting for the buying/selling of funds/stocks. It wouldn't apply in your case unless you partially bought/sold your holdings of individual stock/funds on different days. canada requires using average cost, while US does not.
You can look that information up yourself if you wish, that is not for this space.
<i>nelsona non grata... and non pro</i>
Having just read the publication for 2004, it appears that I was in error in not filing a tax return then. I made an honest mistake and had either missed or misintepreted certain materials back then. Had I known as much as I know now, it is obvious to my advantage that I should have filed to at least lock in the capital loss.
What is the case of not filing now, and admitted that I made a mistake then. In my case, I may have broken some rules, but did not evade tax. On the princple that someone coming forward to admit the wrong are usually treated more leniently, if I filed now, the worst is that I paid the $25/day penalty, up to a maximum of 2500. On the other hand, if that rule was not entirely in place back in 2002, there may be no penalty. On the up side, if the tax return is accepted, I may still be able to lock in the loss. There is also the benefit of knowing exactly the outcome, and closing out this chapter.
If one is found out years later, would there not be additional penalty, such as interest on outstanding penalty etc.?
Thanks.
What is the case of not filing now, and admitted that I made a mistake then. In my case, I may have broken some rules, but did not evade tax. On the princple that someone coming forward to admit the wrong are usually treated more leniently, if I filed now, the worst is that I paid the $25/day penalty, up to a maximum of 2500. On the other hand, if that rule was not entirely in place back in 2002, there may be no penalty. On the up side, if the tax return is accepted, I may still be able to lock in the loss. There is also the benefit of knowing exactly the outcome, and closing out this chapter.
If one is found out years later, would there not be additional penalty, such as interest on outstanding penalty etc.?
Thanks.
Geez, how much cap loss did you have?[xx(] To make it worth your while you'd need at least $10K in losses to outweigh the T1161 penalty, and you'd need to move back to Canada.
If you had that much loss, you shouldn't have waited until your third year in US to trigger some losses, so that you could get the yearly $3000 deduction.
I'm pretty sure that they will penalize you, if you voluntarily file now.
If you say nothing, the three year mark will pass and nothing can be done by CRA.
IT's up to you.
<i>nelsona non grata... and non pro</i>
If you had that much loss, you shouldn't have waited until your third year in US to trigger some losses, so that you could get the yearly $3000 deduction.
I'm pretty sure that they will penalize you, if you voluntarily file now.
If you say nothing, the three year mark will pass and nothing can be done by CRA.
IT's up to you.
<i>nelsona non grata... and non pro</i>
Thanks for the reply.
I am not clear of what you mean with respect to the 3 year mark? DO you mean after 3 years, the rule and the penalty no longer apply? Can you refer me to the publication that discussed this. I thought it is the other way: e.g. people who are deliquent on their taxes if found out not only have to pay back their taxes, but also need to pay the accrued interest, and may be some other punitive penalty. I was afraid that interest on top of penalty may persist in my case, and the longer one waits, the higher the cost. And it seems that this will be found out eventually, since it is a matter of not if but when I return to Canada and file again.
On the Canadian side, my loss was > 10K, so it is worth more than the
2500 penalty (assuming at the top marginal tax bracket). The only thing I am not sure is whether the loss if accepted can be carried forward indefinitely?
On the US side, so far I have no capital gain, hence I did not need to sell to trigger a loss. Besides some of those investments have since turned around.
Another thought: suppose stock ABC is bought at $10C many years back in Canada, over the years, distribution brings about another $2C, so ACB = $12C. On the day of the move, market value = $8C. Hence for CRA, loss is $4C. For US side, ACB = $12C converted to say 12 * x $US, one sells the next day after the move, say $8.01 * y $US, with again loss = (12 * x - 8.01 * y) in $US, where x and y are the exchange rate applicable to the date of transaction. Because of deemed dispostion, for a loss, it seems that there is now a loss generated on each side. Did I miss something, or is this kind of double dip legal for both sides? Does each side check with each other to make sure that the same loss is used only once? Also, for x > y, the loss becomes larger for the US side!
I am not clear of what you mean with respect to the 3 year mark? DO you mean after 3 years, the rule and the penalty no longer apply? Can you refer me to the publication that discussed this. I thought it is the other way: e.g. people who are deliquent on their taxes if found out not only have to pay back their taxes, but also need to pay the accrued interest, and may be some other punitive penalty. I was afraid that interest on top of penalty may persist in my case, and the longer one waits, the higher the cost. And it seems that this will be found out eventually, since it is a matter of not if but when I return to Canada and file again.
On the Canadian side, my loss was > 10K, so it is worth more than the
2500 penalty (assuming at the top marginal tax bracket). The only thing I am not sure is whether the loss if accepted can be carried forward indefinitely?
On the US side, so far I have no capital gain, hence I did not need to sell to trigger a loss. Besides some of those investments have since turned around.
Another thought: suppose stock ABC is bought at $10C many years back in Canada, over the years, distribution brings about another $2C, so ACB = $12C. On the day of the move, market value = $8C. Hence for CRA, loss is $4C. For US side, ACB = $12C converted to say 12 * x $US, one sells the next day after the move, say $8.01 * y $US, with again loss = (12 * x - 8.01 * y) in $US, where x and y are the exchange rate applicable to the date of transaction. Because of deemed dispostion, for a loss, it seems that there is now a loss generated on each side. Did I miss something, or is this kind of double dip legal for both sides? Does each side check with each other to make sure that the same loss is used only once? Also, for x > y, the loss becomes larger for the US side!
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I am not clear of what you mean with respect to the 3 year mark?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Generally, CRA can't go back more than three years from the date your return was filed to contest anything. I'm not sure if the fact that you didn't file extends this period, but I do know that if you filed now, the 3-year clock would start again now.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">The only thing I am not sure is whether the loss if accepted can be carried forward indefinitely?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Yes, indefinitely.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">On the US side, so far I have no capital gain, hence I did not need to sell to trigger a loss.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I guess you didn't realize that in the US you don't need capital gains to write off capital losses. One should <u>always</u> consider crystalizing some cap losses on a yearly basis, at least upto the $3000 mark.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Did I miss something, or is this kind of double dip legal for both sides?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Of course its legal. US doesn't ordinarily recognized deemed dispositions, and they are thus a non-event in US. Its only by side-agreement that you can CHOOSE to have US recognize the deemed disposition, if it is to your advantage (US can't even force you to use it). The reason for the side-agreement was that many Cdns leaving Canada had to pay US tax on gains they had already paid deemed dispo tax on.
So double-dipping is just as possible as being double-dipped was.
The reverse of these scenarios is also possible when moving from US to Canada (I'm not going to explain all this here as I have cobvered this many times).
The rule of thumb is, when you leave canada for the US, wait to sell your losers until AFTER leaving (which, unwittingly, is what you have done). And when coming back to canada, sell all your losers BEFORE leaving US. This will always yield the most favourable tax treatment in both countries.
<i>nelsona non grata... and non pro</i>
Generally, CRA can't go back more than three years from the date your return was filed to contest anything. I'm not sure if the fact that you didn't file extends this period, but I do know that if you filed now, the 3-year clock would start again now.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">The only thing I am not sure is whether the loss if accepted can be carried forward indefinitely?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Yes, indefinitely.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">On the US side, so far I have no capital gain, hence I did not need to sell to trigger a loss.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I guess you didn't realize that in the US you don't need capital gains to write off capital losses. One should <u>always</u> consider crystalizing some cap losses on a yearly basis, at least upto the $3000 mark.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Did I miss something, or is this kind of double dip legal for both sides?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Of course its legal. US doesn't ordinarily recognized deemed dispositions, and they are thus a non-event in US. Its only by side-agreement that you can CHOOSE to have US recognize the deemed disposition, if it is to your advantage (US can't even force you to use it). The reason for the side-agreement was that many Cdns leaving Canada had to pay US tax on gains they had already paid deemed dispo tax on.
So double-dipping is just as possible as being double-dipped was.
The reverse of these scenarios is also possible when moving from US to Canada (I'm not going to explain all this here as I have cobvered this many times).
The rule of thumb is, when you leave canada for the US, wait to sell your losers until AFTER leaving (which, unwittingly, is what you have done). And when coming back to canada, sell all your losers BEFORE leaving US. This will always yield the most favourable tax treatment in both countries.
<i>nelsona non grata... and non pro</i>
Of course, Nelson you are right, so up to $3000 loss may used to reduce gross income each year. Luckily or unluckily some of the losses are still there, so from now on, I shall crystaliize some of the losses at least up to $3000 US. If I sell to lock in a loss of >$3000 US, will the un-used portion of the capital loss be allowed to also carry forward indefinitely for the US side? If I move back to Canada say sometimes later this year, I can only deduct $3000 US for my 2005 US return. After 2005, I have no more US employment income, but since I shall probably leave the 401K/IRA behind, many years later when I start to withdraw from the IRA, can those un-used loss be used to cancel some of those income?
W.r.t. the 3 year mark, I see that you are only referring to a general rule of thumb, not a specific ruling. I seriously doubt that there is some sort of time limit if money is owned to CRA (tax arrear for sure, and possibly for penalty $).
Regarding double-dipping, then it reduces the pain of a loss a little bit more. For the same loss, on the Canadian side, one eventually gets back about 25% of that (top tax bracket). On the US side, one gets back about 28%+(7-9% for CA) over several years.
W.r.t. the 3 year mark, I see that you are only referring to a general rule of thumb, not a specific ruling. I seriously doubt that there is some sort of time limit if money is owned to CRA (tax arrear for sure, and possibly for penalty $).
Regarding double-dipping, then it reduces the pain of a loss a little bit more. For the same loss, on the Canadian side, one eventually gets back about 25% of that (top tax bracket). On the US side, one gets back about 28%+(7-9% for CA) over several years.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">will the un-used portion of the capital loss be allowed to also carry forward indefinitely for the US side<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Yes, but if you are no longer a US resident, it will likely not be of any value, since you can't use them on a 1040NR. You would need to be filing a 1040 to use up the losses. pretty complicated for little benefit, since reducing US tax does nothing for your overall Cdn tax burden.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">W.r.t. the 3 year mark, I see that you are only referring to a general rule of thumb, not a specific ruling<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
What rule of thumb? The Fairness provisions of the tax regulations mandate the three-year period. there may be some way for them to get around it, but CRA is supposed to assess you, and have only a certain time to do this.
As I said, had you filed a return in 2002 (any return) the clock would just about be up, unless you amended your return. The fact that you filed nothing might (or might not) give them a way out.
By the way, you too are subject to the three year rule, and would have to apply for a waiver of this rule to get all your losses on the books, so, if you really feel like filing a 2002 return, better get busy.
<i>nelsona non grata... and non pro</i>
Yes, but if you are no longer a US resident, it will likely not be of any value, since you can't use them on a 1040NR. You would need to be filing a 1040 to use up the losses. pretty complicated for little benefit, since reducing US tax does nothing for your overall Cdn tax burden.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">W.r.t. the 3 year mark, I see that you are only referring to a general rule of thumb, not a specific ruling<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
What rule of thumb? The Fairness provisions of the tax regulations mandate the three-year period. there may be some way for them to get around it, but CRA is supposed to assess you, and have only a certain time to do this.
As I said, had you filed a return in 2002 (any return) the clock would just about be up, unless you amended your return. The fact that you filed nothing might (or might not) give them a way out.
By the way, you too are subject to the three year rule, and would have to apply for a waiver of this rule to get all your losses on the books, so, if you really feel like filing a 2002 return, better get busy.
<i>nelsona non grata... and non pro</i>
With the new Canadian budget allowing higher basic personal exemption (starting at $10K C and indexed to inflation), in some future years when one is retired, if one withdraws from IRA an amount less than the then exemption amount, and if one can cancel the withdrawal with the carried forward loss, then net tax owed to IRS will be 0. And if the IRA withdrawal is the only income in that year, then $0 tax for CRA as well. I can't see too much complexity here: it is just one income, one deduction, and hopefully net $0 income.
Can a non-resident of US still files the 1040, and claim the long ago locked in but un-used loss? But I remember that there is also such a thing as the alternative minimum tax, may be one still has to pay some tax. Does the alternative minimum tax takes effect at such a low income level?
W.r.t. the 3 year mark, I hope you are right. Somehow, I thought CRA will come after for all the money that they are legally entitled to get. If someone either deliberately or by mistake omits to report certain income, say for year 2001, and if CRA has not found out and asked to re-assess, does it mean that the person will be scott free in 2005 as far as 2001 tax matter is concerned. Also, I seem to recall that we are supposed to keep our tax records for up to 7 years, so the window would be 7 years instead of 3?
Thanks.
Can a non-resident of US still files the 1040, and claim the long ago locked in but un-used loss? But I remember that there is also such a thing as the alternative minimum tax, may be one still has to pay some tax. Does the alternative minimum tax takes effect at such a low income level?
W.r.t. the 3 year mark, I hope you are right. Somehow, I thought CRA will come after for all the money that they are legally entitled to get. If someone either deliberately or by mistake omits to report certain income, say for year 2001, and if CRA has not found out and asked to re-assess, does it mean that the person will be scott free in 2005 as far as 2001 tax matter is concerned. Also, I seem to recall that we are supposed to keep our tax records for up to 7 years, so the window would be 7 years instead of 3?
Thanks.
Your scenario is pretty far-fetched.
Are you working in the US in order to make $10,000/yr in retirement, with no other income? Good luck.
Better it would have been to get it $3000 right here right now at your highest tax bracket.
The 7 year scenario. allows for you to reassess at the three year limit, and still have 3 years to restatr the clock. Not all that complictaed really.
I think we've played out this string... all the best.
<i>nelsona non grata... and non pro</i>
Are you working in the US in order to make $10,000/yr in retirement, with no other income? Good luck.
Better it would have been to get it $3000 right here right now at your highest tax bracket.
The 7 year scenario. allows for you to reassess at the three year limit, and still have 3 years to restatr the clock. Not all that complictaed really.
I think we've played out this string... all the best.
<i>nelsona non grata... and non pro</i>