Interest Income T5 And Emigrant Return

[nquery]

Hi,

re. 1: sorry, yes you are correct in that one would first apply FEIE. but in it's only a % of the year as a NR x FEIE limit per person (95,100 in 2012). you can't share or 'borrow' some of the FEIE from your spouse to cover your income from what I have read and how form 2555 works. but maybe i am wrong on this???

assuming that is correct, in my case i could only use 2555 for about 63k of 120k. and then i would have to use the 1116 for the rest. and the new 2555 rules effectively only removes the tax at the bottom of the brackets - the remaining income is taxed at the top. i tried it both ways and it still worked out substantially better going dual-status/MFS.

re. 2: i entered on a green card so I didn't really have the choice of just filing 1040NR. But I hadn't thought about that option for those who don't satisfy GC or SPT ... so I now get your point that dual-status does not buy anything over a 1040NR alone.

As always, thanks for the clarifications.

[colinc]

nelsona,

Coming back to this, it seems a bit too advantageous. Especially since living in the US I noticed everything gets taxed even bank account opening bonuses to lottery winnings.

If an individual with a sizable amount in bank deposits emigrated from Canada to the US and didn't meet SPT, wouldn't that effectively mean their interest income goes untaxed? Having lived in North America for 25 years it feels uncomfortably strange see income go untaxed...

I'm more used to travesties like CDN tuition credits cannibalizing foreign tax credits or TFSAs being not recognized as similar to Roth IRAs and taxed by the IRS.

Overall Emigrant Canada + 1040NR is pretty nice...
- After leaving, Canada can't tax my US income and vice versa for 2013
- Marginal tax rate in Canada independent of marginal tax rate in the US
- Interest income exempt for 2013 post emigration
- State income taxes still deductible

The only thing that's missing from 1040 is MFJ brackets, standard deduction and a few credits.

[nelsona]

It is the rules. US taxation is not well suited to part-year taxes, since it taxes by citizenship, and that is not typically part-year. Canada taxes on residence, which almost always results in part-year tax returns.

But, yes, emigrants from Canada TO US, who do not meet SPT can avoid US and Cdn tax on their post-departure interest. But that is all, and that is because Canada removed NR tax on interest. US removed NR tax on interest YEARS ago.

If it is any consolation, the taxrate on 1040NR on other items is higher than normal tax.

Oh, and Canada does remove some personal amounts from deductions on departure return, so marginal brackets are adjusted.

Here is another tip. If you do not get GC, you can shelter ALL your US-based gains from US and Cdn taxation if you sell only after leaving US. That is well-known.