US Tax treaty question

[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]

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.

[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]

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]

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