Non-Resident Canadian, how to file with Cdn stocks?

[JackHummer]

I am Canadian. I moved to the US at the very end of 2006 (Dec. 31/Jan. 1). So all my income in 2006 was in Canada, and all my regular employment income in 2007 was in the US. I don't have any house in Canada. I didn't do anything special on my 2006 return, since all my income in 2006 was from Canada. The problem is that I didn't do anything with my Canadian brokerage or RRSPs when I moved down to the US at the end of 2206 (I didn't know about severing ties at the time). I bought and sold a minimal amount of stocks during 2007, and didn't buy any more RRSPs or mutual funds. So my questions are...

1) Do I have to file my 2007 Canadian taxes as a resident because I didn't sever my brokerage and RRSP ties? It would be a shame to pay all that extra tax on my normal US employment income because of that.

2) If not, how do I handle the taxes on those items as a non-resident? I was reading somewhere that when you sever ties, you can do a "deemed disposition". So should I file the return as a non-resident (don't report my US income), but include the capital gains/losses as if I sold all my stocks on Jan. 1 as a normal return? Then treat the gains/losses of the stocks I bought and sold during the year separately (with starting prices as of Jan. 1)?

3) What do I do with my RRSPs (similar to the stocks in item 2 above)?

Thanks in advance!

[nelsona]

1. No. However, you need to not only adhere to the steps outlined in the emigrant guide on advising your brokermanager that you are non-resident. There is also the matter of departure tax on your investments held at the the time of departure, and the reporting of those holdings.

So, you need to establish a REAL departure date (I would say Jan 01/2007) and file a departure return for 2007 following the rules of the Emigrnat guide using the province you lived in before leaving. This would not include any income other than your deemed departure tax, which would be paid at the fed/prov rate.

2. Any transactions after Jan 01 2007 are no longer of any interest to Canada, since you are non-resident. They would only appear on your US return, with basis a choice of normal basis or the basis established for deemed disposition on your Cdn return (which ever is favourable to you).
Not telling your broker that you had left canada was a regulatory violation, so you need to tell him, and trnasfer any remainin assets (non-RRSP) to US or sell.

3. Your RRSP is fine as is. However, if it is not a self-directec RRSP held by a broker liensed to deal with residents of your styate, you will need to trnasfer it to one that is (TDW for example) and will not be allowed to trde until you do.

You do have reporting requirements in US for all accounts held in Canada. and for RRSPs in particular (Form 8891). There are many threads on this.

[JackHummer]

Thanks for the detailed response. Wow, this is more complicated than I thought it would be. I may just file as a resident for 2007 to avoid all these issues...

Assume I file as a non-resident, I have a couple other questions...
Some background info:
1) My brokerage is TD Waterhouse Canada (all online, no personal broker).
2) My RRSPs and some mutual funds are through a financial planner (who I assume is NOT a registered broker in the US State I live in)..

So my questions...
1) Are the mutual funds treated like the stocks or like the RRSPs (I'm assuming like the stocks)? Do I have to liquidate them (I didn't buy any more during 2007), or can I just do a "deemed disposition" for the departure tax and then just sit on them?
2) If I file as a non-resident, you said I will have commited a regulatory violation because I didn't inform my brokerage. Is this a violation with Canadian or US regulatory agencies? Are there any penalties due to it that should make me just file as a Canadian resident and eat the extra tax hit?

Thanks again!

[nelsona]

You have 4 issues:
1. You need to establish your departure and pay your departure tax; there is no getting around this. CRA can 'force' you out since you live in a treaty country. Best make the decision on your own.

2. You need to advise your financial dealers tha tyou are in US. Any contact you have with them that is not doen with a state-compliant broker is a violation of fed and state SEC rules.

3. You then need to get all your investments with the correct brokers.

For non-RRSP, Your stock should be moved to US broker. Your mutual funds can't be transfered to US nor can they be swapped for something else. if your broker permits it, you can hoild them until you want to sell into cash.

For RRSP, you can pretty much keep what you have, but your need to have a state compliant broker, and you can't do automated tades.

4. Taxes and reporting: once yopu've paid your deemd dispo tax, your finished with canadian taxes on non-RRSPs. You taxes of r2007 transactions will be with IRS. Your RRSP existence needs to be reported every year to IRS, and you can elect to defer taxes on the growth until you begin taking funds out. You also have foreign account reporting requirements.

[nelsona]

The issue with non-compliance of your brokerage account has nothing to do with your tax status. It is because you are physically in US -- in a particular state -- when making these trades. It is SEC that is the issue not Cdn or US taxes.