Canadian Moving to the US on a TN Visa - TFSA Advice

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LongJumping_Policy30
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Canadian Moving to the US on a TN Visa - TFSA Advice

Post by LongJumping_Policy30 »

I moved to California on a TN Visa in the middle of October this year on an intra-company transfer. Unfortunately, I did not think to check the tax implications before I left, so my Canadian accounts (TFSA, RRSP) are still intact. The one that concerns me the most is the TFSA (~60k CAD), which every forum says I should have liquidated before, but I did not prior to leaving. So, I am wondering, what should I do at this point? Below are some aspects I have been thinking about:
1. The substantial presence test. Since I moved to the US only in October, I do not meet the substantial presence test. However, does this even matter? Since I am here on a work visa, am getting paid by a US company, it seems like I will be considered a US tax resident upon arrival.
2. Whether or not I meet the substantial presence test, can I liquidate my TFSA now (in December, post-arrival to the US) and somehow have the IRS not tax it, since I am liquidating it during a year in which I resided mostly in Canada, and since I will have to dual-file taxes?
3. My capital gains, if everything is sold, will be less than $80k USD (since the account is only $60k CAD). Will these gains be taxed at all? The IRS website seems to suggest that if my taxable income is below $80k USD, the capital gains are taxed at 0%. Does this include both my capital gains and my salary (73k USD)?
4. If (3) is true, should I liquidate my TFSA in portions across multiple tax years, so that my taxable income (including my salary and capital gains) is below $80k?
5. If I do liquidate, I will likely be putting all proceeds toward my student loans (~70k). Will this give me some sort of tax credit, like tuition does in Canada?
6. An additional question: I see that the RRSP is included in the tax treaty, but my RRSP has a single RBC US Index fund. I read that Mutual Funds are viewed and reported as PFICs, does this still apply to the RRSP since it's recognized by the US?

Thanks in advance for your help!
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

1. Because you do not meet the SPT, you are not required to consider yourself either a resident or dual status for 2021. This does not change your departure date from Canada, which is still october. So you can merely file a 1040NR for 2021 to avoid any hassle with TFSA.
2. You SHOULD liquidate before year end so that for 2022, you will not have TFSA to worry about in terms of declaring income or trust filings (or PFIC, see 6).
3/4. Because you will file a 1040NR, your investments gains from Canada will not be taxable in 2021.
5. Not that I know of. You will be paying downs the loan, so your interest payments will go down.
6. RRSPs are specifically exempt from PFIC rules. TFSAs are not which would be another important reason to empty the TFSA NOW. Like TODAY.
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LongJumping_Policy30
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by LongJumping_Policy30 »

nelsona wrote:
> 6. RRSPs are specifically exempt from PFIC rules. TFSAs are not which
> would be another important reason to empty the TFSA NOW. Like TODAY.

Thank you very much for your reply - it's helpful, just like the other replies I've seen you make. One follow up: does emptying the TFSA entail also closing it, or just selling everything? I'm assuming closing is the better choice, because it gets rid of it completely, and the Canadian Feds will still have a record that I withdrew, so my contribution room comes back. Just would like to be sure.
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

i would close the account completely. no point keeping it.
You can open a new one if you come back, and take advantage of any new customer bonus brokers might be offering at the time.
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LongJumping_Policy30
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by LongJumping_Policy30 »

I am now proceeding with liquidating my TFSA. However, something else has come up: RBC wants me to fill out a W9 form and code me as a US resident, since I am on a TN and will be in the US for over 6 months. They say I will/may have to pay a withholding tax of 24% to the IRS if I do not submit the W9 and am not coded properly, and that I should not have online access to my account (even though I still do because coding is not complete).

Are they correct to code me as such? On the one hand, I don't think I should fill out the W9 YET, because it says I must be a US Person (and thereby tax resident) to sign, which I am not currently. However, I am leaning towards just filling it out and having RBC file it, and the final determination of whether or not I am a tax resident will get sorted when I file taxes in April. If I don't fill out the W9 now, I am worried about the IRS saying I am not reporting or something.

Any input on this? This opened a huge easter egg with RBC and they have to call around their support team.
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

It is not a problem. File the W-9.
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LongJumping_Policy30
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by LongJumping_Policy30 »

So another problem has come up - RBC is investigating whether I should file the W-9, and whether my account should be coded as a US resident.

In the meantime, however, my account is still coded as Canadian (address has not been changed). According to them, I would be subject to backup witholding if I liquidate with a US address, but NO SSN. If I liquidate while my account is still Canadian coded (e.g., by myself online), I will not be subject to backup witholding. Should I liquidate my account myself online? Is there any chance that they/the IRS will come back and retroactively apply the witholding, and examine documents like my I94, etc?

My concern is they might not finish their end on time - they are only open on Dec 29, which is the last day to sell and settle in this year.
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

Just liquidate it. RBC doesn't need to get involved.

Withholding is just thatL withholding. If there is no tax, you would get it all back.

But in this case, RBC is confused, so remove them from the equation.
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okinawafl
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by okinawafl »

"1. Because you do not meet the SPT, you are not required to consider yourself either a resident or dual status for 2021. This does not change your departure date from Canada, which is still october. So you can merely file a 1040NR for 2021 to avoid any hassle with TFSA."

For 1040NR- Schedule OI, question A and B asking what country were you a citizen and claim residence for tax purposes during the tax year.
If the departure return in T1 will be filed with the October date, would the answer Question A & B on this Schedule OI still be putting Canada or should leave it blank (as Jan-Oct is tax resident in Canada, but Nov-Dec is non-resident of both Canada and U.S.)
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

You would write Canada.
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okinawafl
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by okinawafl »

thanks nelsona
For form Schedule OI (for Form 1040NR). could you mind I am asking more idea for Question B. "In what country did you claim residence for tax purposes during the tax year? In this case, Canada tax residency is Jan to Mid-Oct only, and mine is Jan to early Sept. Does IRS ask for the Full Year tax residency? Many thanks for your guidance.
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

I think you can figure this out....
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okinawafl
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by okinawafl »

I am sorry, I tried to google and look around but can't find the answer.
boris_can
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by boris_can »

nelsona wrote:

> 2. You SHOULD liquidate before year end so that for 2022, you will not have
> TFSA to worry about in terms of declaring income or trust filings (or PFIC,
> see 6).

I have a question about this item -- most sources I've read suggest doing the same, i.e. collapsing / closing your TFSA before moving to the US, but I'm confused because that would seem unwise if a move back to Canada at some point in the future is possible, right?

I understand that any income/dividends or realized capital gains will be taxable if you're a US person, BUT mere appreciation / UN-realized gains are not, correct? So if I have a $100K TFSA invested in a simple ETF, wouldn't it be far preferable to keep it there if I move to the US, allowing it to appreciate tax-free? In the event I return to Canada down the line -- and because the US doesn't have a departure tax -- wouldn't I then get the benefit of all that tax-free growth? I understand there are additional filing requirements (and US tax on any dividend income that may accrue), but wouldn't that be outweighed by the (historical average) 5-7% annual returns tax-free (again, if I return to Canada)?
nelsona
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Re: Canadian Moving to the US on a TN Visa - TFSA Advice

Post by nelsona »

2 problems with that:

1. Cdn ETFs are considered PFICS, which essentially require you to pay tax year by year, even if you do not sell, so the tax-free aspect is lost (you could get a US ETF if your broker allows).
2. Many view TFSAs as a foreign trust requiring yearly 3520/3520-A filings.

You can always re-fund your TFSA when you return, and if done correctly, can be done without triggering any gains in US when you leave.

Your choice of course. I said SHOULD, not MUST.
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