Dual Status and Last Year of Residency Strategy

WiseGuy · Post by **WiseGuy** » Sat Jun 18, 2005 2:12 pm

I'm catching up on some old tax returns and still need a bit of clarification. Here is my situation: am single, Canadian citizen, no dependents, and lived in the U.S. on TN/B2 for:
<ul><li>320 days in 2000 </li><li>365 days in 2001 </li><li>49 days in 2002 (returned to Canada in Feb. 2002) </li><li>and came back to U.S. for short visit in 2003 for 5 days.</li></ul>
In the year I left U.S. for Canada (2002):
<ul><li>cashed in $USD 2000.00 401K (few weeks before leaving U.S.)</li><li>received approx. $USD 10,000.00 in U.S. Employment Insurance (which I decided to have zero tax taken off at source) a few months after I arrived back in Canada.</li></ul>
For 2002, I filed a full year U.S. resident return so that I could get the standard deduction and save on tax.

Question #1: a.)Was I correct in picking Dec. 31, 2002 as my residency termination date and filing the full year Resident 1040? According to my Substantial Presence Test calculation (STP) for 2002, I come up with 49 + 1/3(365) + 1/6(320)=223 days.
b.)Was I also correct in assuming in your "last year of residency" you have an option of choosing the Dec. 31, 2002 date over the earlier date (in my case, my date of departure would have been approx. Feb. 19, 2002), thus avoiding a "dual status" tax year[?]

Question #2: Was I correct in assuming both this 401K and U.S. Unemployment Insurance income are taxed at the same regular U.S. graduated rates? (Pub. 519 says some income not effectively connected with U.S. trade or business is taxed at a 30% rate but I'm not sure if this applies here). I had about $USD 200.00 taken off at source when I cashed the 401K in, so I think I was ok there, and I paid about $USD 700.00 tax when I filed that 2002 return to make up for the UI shortfall.

Question #3: How do I account for this 2002 U.S. income on my Canadian return since I filed a full year resident 1040? Do I leave off the $USD 2000.00 401K income (since it was received while I was a U.S. resident) and just show the $USD 10,000.00 U.I. I received as a Canadian resident and take a foreign tax credit and make up the difference (if any) on my T1? (I realize since I'm a late filer, if I owe tax, I may also have to pay penalties for this late Canadian return).[:o)]

Question #4: What difference does filing a U.S. Resident vs. Non-resident tax return have when you are back in Canada and filing Canadian T1's?

Thanks for all the help -- really enjoy the forum!

nelsona · Post by **nelsona** » Sun Jun 19, 2005 12:44 am

1a. Yes you were correct, regardless of SPT. The fact that you had been resident the previousd year made you resident in your year of departure until Dec 31, or, had you shown that you had established another tax home, could have filed part-year.

b. Yes, as above, plus the fact that by treaty you can always elect to file a full-year 1040.

2. A a 1040 filer, nothing in 519 applies. You are just like anyone else in US. Your 401(k) money would be subject to 10% penalty of course, and to state taxation.

3. Your Cdn return would have a START date, and any income received after that date would be reportable, and a foreign tax credit available for the uS tax paid on that portion of your US income.

4. None.

nelsona non grata... and non pro

Jaspal · Post by **Jaspal** » Mon Jun 27, 2005 4:48 pm

a comment regarding U.I. for US job while living in Canada.

If a person returns to Canada because of the job loss in US, is he/she paid UI in US$? If so, what is the duration/amount? Thanks.

Jaspal

nelsona · Post by **nelsona** » Mon Jun 27, 2005 11:54 pm

Not really on topic...

The payment you receive, and duration will depend strictly on the agreement HRDC has with your particular state.

You could be paid directly by the state, OR you could be paid by HRDC at a rate/duration determined by the state, OR you could be paid the Cdn EI rate.

HRDC in Belleville will have the answer (I invite you to find the phone number yourself).

nelsona non grata... and non pro