GC Holder moved back to Canada

[vduclos]

Hi nelsona,

Our family's been living and working in the US for 3 years on a GC. I moved back to Canada in August and do not intend to move back to the US anytime soon. Last day working in the US was 31 July and I started my new job in Canada right on 1 August. We've sold our house in the US on 7 August, so a few days after I started working in Canada. However, I was still physically present in the US, and I crossed the border right after settlement. My wife however had crossed the border two weeks earlier.

1. Considering that my wife (also co-owner) moved back to Canada before we sold the house, how can we deal with this, tax-wise? We made a good profit on the house so I want to make sure it is not being taxed in both countries.

2. For salary, it is my understanding that I should file dual status. That would mean that the week or so when I was employed in Canada but still living in the US would be included in 1040, and the remaining (starting, 8 August) would be in the 1040NR. Is that correct?

3. We are in the process of abandoning the GC. Does it make any difference at all on what date it is effectively being abandoned?

4. I received cash out payment for 403b in October, and US federal taxes have apparently been withdrawn at that moment. I tried to cash out before leaving without success. My understanding is that I will have to declare that as revenue and pay taxes in Canada as well?

thx!

[vduclos]

I should also perhaps mention that we had the house for just a little under two years. So we only qualify for a partial exclusion of gain.

[nelsona]

1. Since your house in US would be considered sold and bought on the day you re-established Cdn residence, which would be Aug. 8 for you but earlier for your spouse, there in no profit in Canada's eyes on the house. Your only tax will be in US.

2. You have a GC, so you cannot file dual-status. besides, even if you did not have GC, you would still better filing full year and taking all the deduction, exemptions and foreign earned income exclusion you are allowed, filing jointly. 1040NR is usually punitive tax-wise, even if you were eligible.

3. Yes, that wiull determine when you are no longer required to file 1040.

4. Correct.

[vduclos]

Many thanks.

1. So it does not matter that my wife sold her share of the house two weeks after having re-established Cdn residency? Or meaning we, as a family, re-established residency on 8 August?

2. Okay. So I'll file full year in the US. And in Canada/Quebec, I'll file as returning resident starting 8 August? Can I be resident in both countries simultaneously? I guess it's a basic question, but seems awkward.

3. Do you know what date matters? The date we mail in the GC? In any case, my understanding is that for 2020 it makes no difference. But in 2021 it will prevent us from filing in the US, correct?

[nelsona]

1, She will report her share of the house sale, but it will be the appreciation from the day she arrives in canada until the day she sells, minus selling expenses. Do you think her share of the gains in two weeks will outweigh your brokerage fees?
2. You can, but in your case it doesn't matter, since you need to file 1040 even if you never set foot in US -- you are a GC holder. You will file 1040 until you get rid of GC.
3. There is a form to fill. I would arrange for the requirement to be met on Dec 31, if possible, but let the dust settle. Don't be too eager to get rid of GC, there is no harm right now tax-wise, even into next year.

[vduclos]

1. Hard to tell. How is appreciation calculated in such a case? We did end up selling much higher than listing price. And brokerage fees were minimal since we did not use an agent (but we did pay commission to the buyer's agent). But then again the offer on the house was accepted by the moment my wife left, so I guess on paper it really did not appreciate.....

2. Understood.

3. Sound advice.

Lastly, a bank financial advisor just told me that I could reinvest the 401K I withdrew into a REER. Apparently not possible to transfer directly, but since it is now in my savings account I could lower taxes by doing that. Makes sense? He seemed knowledgeable, but who knows....

[nelsona]

It is very complicated to do this, and has little value. and you need to come up with the tax money that is withheld in US. keep your 401(k) in US. The person is just trying to get you to put your money in his firm, not looking out for you.

1. The FMV of your house does not change in two weeks, regardless of what market you live in: it is the sale price. The expenses are taken of the sale price, so your gain in Canada;s eyes are negative.

[vduclos]

I'm afraid to admit the money is already in my bank account in Canada. I cashed out and transferred. It was not a huge amount though (20K). Still, I'd rather not be double taxed on it....

Many thx again.

[nelsona]

Did you withdraw this money from the 401(k) before or after you left US?
If before, I wouldn't bother putting it back in an RRSP, since you ahve already have to pay the US tax, and you don;t need to report it in canada anyways.

If you did it after your move, then you need to report it in both countries, and then -- maybe -- trying to put it all back into an RRSP would make sense as long as you made at least that amount in canada after your return.

[vduclos]

I withdrew after leaving. Was apparently not possible to withdraw while still being employed there, in the US. But I seem to have already paid 20% Federal Income Taxes when it was withdrawn in the US. Makes sense?

But yes, I've made more than that in Canada since I returned.....so I will try to go for that RRSP move....will let you know if that works..

[vduclos]

I have a follow-up question about double taxation of the 401(k) I withdrew after moving back to Canada. Obviously, Canada wants to tax it since I was back in Canada when I received it (even though I made the request before leaving the US). I've already paid 20% US taxes when I withdrew. I'm preparing to file on both sides. Is there any avoiding double taxation at this stage? Would Article XVIII of the tax Convention apply? Any foreign tax credits I can use, on either side? many thx

[nelsona]

Of course, you use the US tax (calculated on your US tax return, not the withholding) on your Cdn Tax return. Too bad the timing was off.

[vduclos]

Do I simply input the taxes paid in the US, or is there a more complicated calculation involved?

[nelsona]

As I said, you use the tax calculated on your tax return, whether they are paid yet or not. It is the accrued tax.