Deemed Non-resident & Roth IRA Conversion

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
deltrave
Posts: 5
Joined: Tue Dec 15, 2020 2:02 pm

Deemed Non-resident & Roth IRA Conversion

Post by deltrave »

I moved to Canada with my spouse as permanent residents from the US (not Citizen/GC Holders) in Sep 2020 after living in the US for 5 years. We have taken up an apartment on a 7-month lease and established other residential ties within Canada.

Question 1: Since I have spent more than 183 days in the US in 2020, I meet their substantial presence test, and therefore I will be filing US taxes as a resident for 2020. For Canada, instead of starting residency in Sep, I believe I can declare myself as a deemed non-resident of Canada but would like to confirm? Further, do I need to file anything with CRA to declare myself so - I do not have Canadian income yet and hence will not need to file any Canadian returns?

Question 2: I understand I can make a one-time election - to treat my Roth IRA as a pension - with my Canadian taxes in my first year of residency. If I am a deemed non-resident in 2020, my residency then technically starts on Jan 1, 2021. Will I need to make this election when I file my 2021 taxes by March 2022? Or can I still declare it somehow by Mar 2021 to avoid missing the date in case CRA finds me to be a resident from Sep 2020?

Question 3: If I am a deemed Canadian non-resident and a US resident in 2020, can I still make a Roth conversion from my IRA account prior to Jan 1, 2021 and not have it considered as a Canadian contribution?

Thank you!
nelsona
Posts: 16655
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Non-resident & Roth IRA Conversion

Post by nelsona »

1. You became Cdn resident when you moved. CRA does not determine residency on a yearly basis, but on the basis of when you established residential ties. There is no treaty provision to say otherwise simply because you choose to file a full year return in US, especially that your residence is now in Canada and not US. SPT doesn't apply here in the last year of residency but even if it did, you are still Cdn resident. You would have had to maintain FULL US residential ties to claim deemed non-residency, with your home in Canada being a "cottage".
2. Even if you have no world income from Sep 1 onward, you should file a return, both to establish your account, as well as submit the Roth election.
3. No, you are a Cdn resident.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
deltrave
Posts: 5
Joined: Tue Dec 15, 2020 2:02 pm

Re: Deemed Non-resident & Roth IRA Conversion

Post by deltrave »

I did not expect the answer to be residency date starting Sep 2020. I am a bit confused on why I can not go for "deemed non-resident status"? Per you, do I qualify as an Immigrant per the CRA website (https://www.canada.ca/en/revenue-agency ... tatus.html):

Immigrant: "If you left another country to settle in Canada and you established significant residential ties with Canada becoming a resident of Canada in the tax year, you may be considered an immigrant"

Deemed Non-resident: "If you have ties in a country that Canada has a tax treaty with and you are considered to be a resident of that country, but you are also a factual resident of Canada because you established significant residential ties with Canada, you may be considered a deemed non-resident of Canada. The same rules apply to deemed non-residents as non-residents of Canada".

Re-reading the above for deemed non-resident, being a "factual resident" seems to be a requirement i.e. people who are still living outside Canada or spending part of the year in the US for health/vacation. Will this not qualify me for 2020 and 2021 (if I meet the substantial presence test of US)?

Would you suggest filing form NR74?
nelsona
Posts: 16655
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Non-resident & Roth IRA Conversion

Post by nelsona »

You do NOT meet the treaty requirements "to be considered resident of that other country", because it requires you to have be BOTH meet the definition of resident by (IRS) rules (SPT) AND to have MORE ties in that country (US) than you have in Canada. You no longer have that. You only meet one of those conditions.

Your original post said nothing about your PERMANENT living arrangements in US, so I'll assume you have none. This causes you to fail the residency test in the treaty to be considered a US resident. That is why it is called the toes-breaker. Since you meet both the CRA regs and the treaty definition of Cdn resident, that is what you are, since September. The tie goes to the country where you permanent home, and where you and your family LIVE.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 16655
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Non-resident & Roth IRA Conversion

Post by nelsona »

"tie-breaker"
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 16655
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Non-resident & Roth IRA Conversion

Post by nelsona »

As to your future filings in US, if you meet SPT, you can file a 1040. In fact ant Cdn can file a 1040, by treaty, as long as they wish to report world income. That does not make them US resident however, nor Cdn non-resident.
Snowbirds, for example, end up meeting SPT, but because they maintain a CDn home (by law they must to be admitted as tourists in US) they are still Cdn residents. They file a closer connection return with IRS to avoid having to report world income, etc, to IRS.

If you end up spending lots of time in US in future, that is how you will file, since you will continue to have more ties in Canada than in US.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 16655
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Non-resident & Roth IRA Conversion

Post by nelsona »

In answer to one of your questions, YES, you are an immigrant to canada, and should file a newcomer return with a residency start date of Sept 2020,\.
And NO, I would not bother with NR74, since this will take MONTHS to have a determination, and if you answer factually, you cannot say that you are considered a resident of an other country by treaty, so will not get a "deemed non-resident" determination.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
deltrave
Posts: 5
Joined: Tue Dec 15, 2020 2:02 pm

Re: Deemed Non-resident & Roth IRA Conversion

Post by deltrave »

Nelsona, thanks much for the answers!
Post Reply