how to recognize Cap Gains from US Brokerage, while living in Canada

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magrathea
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Joined: Thu Apr 22, 2021 10:07 am

how to recognize Cap Gains from US Brokerage, while living in Canada

Post by magrathea »

Dual US/Can citizen, living in Canada, trying to avoid dual-taxation.Moved back to Canada full time a couple years ago.Still have a legacy brokerage account in the US, and a property rental in California, and another in Washington state. 

Question on how to recognize taxes...filling out both Canadian and US taxes.
1. How to recognize the capital gains for what was sold from the brokerage account?  Got a 1099 B.  The same assets have a different cost basis between Canada and the US...since when coming to Canada you set the cost basis for CRA at the present value upon entry (but US still recognizes original cost basis).

a) Do I pay all the cap gains first in the US tax return? Also enter it on the Canadian returns and claim some kind of credit or deduction on the Canadian returns?

b) Do I claim it on the Canadian returns first, then somehow declare it as foreign income, along with foreign tax paid on the US return (and if so what category of income/credit)?

2. Same question for Dividends from the US Brokerage.

3.  For the rental income.  Again, do I claim it first in Canada, then recognize as foreign income on the US taxes, or claim it first on US taxes?

(Using US & Canadian version of Turbotax (if there is something better open to opinions))

Thanks in advance.
nelsona
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Re: how to recognize Cap Gains from US Brokerage, while living in Canada

Post by nelsona »

Cap gains are, by treaty, Cdn-sourced. So whatever tax you pay in canada on the gains, can be used against the US tax owed on that gains.. You calculate the gains independently on both returns, and then apply the Cdn tax as a credit on with form 1116 (passive) along with any other passive income (like interest).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Re: how to recognize Cap Gains from US Brokerage, while living in Canada

Post by nelsona »

The US rental is US-sourced. You calcualte the tax in US and Canada, but now you apply the US tax against the CDn tax on your Cdn return.

US dividends are US-soured. Do the same as the US rental.

As I said, you do your two tax return without any regard for foreign tax credits. You determine the taxes for each item, and then apply the credit in the country that considers the income foreign.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
magrathea
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Joined: Thu Apr 22, 2021 10:07 am

Re: how to recognize Cap Gains from US Brokerage, while living in Canada

Post by magrathea »

amazing response time - thank you for the clear answers!
CRAIRS
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Joined: Mon Sep 27, 2021 3:37 am

Re: how to recognize Cap Gains from US Brokerage, while living in Canada

Post by CRAIRS »

really helpful answers nelsona, been trying to figure this one out as well! instructions for form 1116 and pub 154/54 are very dense and focus more on capital gains as seen from a US resident with foreign income perspective. also the treaty is such a difficult read! is form 8833 required at all for the treaty related issues or can all of the above be accomplished with 1116?

magrathea did you end up filing based on the advice of nelsona? from some recommendations dealing with this situation some folks recommend filing the T1 first, claim the FTC via 1116 on the 1040 and pay tax on the dividends, and then amend the T1 with proof that you paid the IRS in order to claim the FTC for the dividends. i guess the CRA can require proof of payment to the IRS before they will allow the FTC.

also regarding cost basis, if you do a journal/in-kind transfer of the US brokerage held assets up to a Canadian brokerage, are there any tax implications for that transfer, and do you just have to keep track of the original cost basis for the IRS/1040 side of things? Seems like moving assets up to Canada should simplify the equation, but maybe it actually makes things more complex with regards to FATCA/FinCen reporting, etc and maybe better kept at the US brokerage. any insight would be helpful, thanks!
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