US Tax treaty question

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taxquestions
Posts: 40
Joined: Tue Dec 18, 2018 6:31 pm

US Tax treaty question

Post by taxquestions »

If one emigrates Canada you are subject to departure tax on all assets at FMV. Example, 100k basis property, 150k FMV = 50k capital gain.

This could result in double-taxation if you were to sell this at a later year as a US citizen/resident as the basis would still appear to be 100k.

Article XIII(7) of the U.S.-Canada treaty alleviates this by allowing one to treat the basis at the FMV rate during the departure.

Question:

Can this also apply to business inventory? IE: Canadian business moves to USA, 10k inv with a 50k FMV = 40k capital gain. Could one then elect to treat their business inventory at a basis of 50k for their US return due to this departure tax?
nelsona
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Re: US Tax treaty question

Post by nelsona »

You can only apply the step-up in basis if there is a deemed disposition due to departure. if your business inventory is subject to departure tax (Is it?) then you may use this.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
taxquestions
Posts: 40
Joined: Tue Dec 18, 2018 6:31 pm

Re: US Tax treaty question

Post by taxquestions »

Interesting.

Business inventory is exempt from deemed disposition if: "the business is carried on through a permanent establishment in Canada"

I am unsure if this exclusion means the business had: A) A PE prior to departure, or B) Retained their PE after departure

What do you think?

https://www.canada.ca/en/revenue-agency ... perty.html
taxquestions
Posts: 40
Joined: Tue Dec 18, 2018 6:31 pm

Re: US Tax treaty question

Post by taxquestions »

Looks like the deemed dispostion would only be exempt if I retain a PE (which I am not) so I would be subject to the depature tax.

It looks like id file Form 8833 and elect Article XIII(7) of the U.S.-Canada treaty. But I am unsure if this would be allowed for business inventory and how it would flow on to the US tax return. Would I simply increase my opening inventory value for the year I realized the departure tax?
taxquestions
Posts: 40
Joined: Tue Dec 18, 2018 6:31 pm

Re: US Tax treaty question

Post by taxquestions »

Not sure if 8833 is even required here. I dont appear to be overriding IRC code by taking this election to cost-up my inventory basis via the US-CANADA tax treaty
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