Taxes on interest/divedends

rtaft · Post by **rtaft** » Tue Mar 04, 2014 7:50 pm

My wife moved to the US in April 2013. This will be my first of many questions :D

She has stocks through a Canadian investment management firm. Roughly half are in Canadian funds, half in US funds. This was setup around February of last year.

We received 1099-INT and 1099-DIV for both the Canadian and US stocks.
We received an NR4 for the Canadian stocks, and nothing for the US ones.

For her Canadian taxes, is she only taxed on the Canadian stocks?

She also has a lot of past capital losses prior to switching stocks to the US account. Can she claim those losses on the US taxes now? If so, how do we go about converting Canadian losses to US dollars?

nelsona · Post by **nelsona** » Wed Mar 05, 2014 10:16 am

First thing to figure out is her Cdn departure tax return, which you need to read the Emigrants guide from CRA. She is first taxed on all her investments as if she sold them on the day she left Canada.

Do this first and we can talk about other things later.

Wa this move to US a surprise? Because setiing up an investment account in Canada a few weeks beforeleaving was not great planning. The account should be closed now , if it is not already.

rtaft · Post by **rtaft** » Fri Mar 07, 2014 12:18 pm

From what I am reading, we fill out the 2013 taxes with a T1243 form for Deemed Dispositions. Your suggestion sounds like this is a separate tax return. Or are you suggesting that filling the T1243 out may eliminate any capital losses and thus part of my question?

It was not a surprise move. We married last year. Her financial adviser transferred her to another agency when she declared her intentions to move. From that point she went from 100% Canadian investments to about 50% Canadian and 50% US. I'm not sure if the new agency's intent is to eventually move everything down, but he seemed hesitant to fully invest due to the political mess going on here like the sequestration, etc.

We also received a pair of T5s after I posted the original post (both for US and CAN funds)

nelsona · Post by **nelsona** » Fri Mar 07, 2014 12:39 pm

The 2103 Cdn tax return is the departure return. The deemed disposition is not an otion, it must be reported and filed. Its part of the departure process.

How she invested in not the issue. Why she opened a new account, which could not be kept loger than a few weeks is.

mimianddaniel · Post by **mimianddaniel** » Fri Mar 07, 2014 4:05 pm

[quote="nelsona"]The 2103 Cdn tax return is the departure return. The deemed disposition is not an otion, it must be reported and filed. Its part of the departure process.

How she invested in not the issue. Why she opened a new account, which could not be kept loger than a few weeks is.[/quote]

Nelsoma,

Is departure return same as return for the emigrants indicated here ?[url]http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... g-eng.html[/url] If so, it shows that Deemed dispositions as part of return process and I can't find where it indicates to include it under income. Would you be kind and enlighten us to where it shows that?

Thank you so much

nelsona · Post by **nelsona** » Fri Mar 07, 2014 4:14 pm

Yes thay are one and the same.

It is a regular return, with a departure date, and deemed dipositions.

Your deemed dispositions get reported on your cap gains schedule 3. Your software will handle this. The T1243 even says it.

If I was your wife, I would be complaining to the second broker, for having made her spend money (commisiions) on an account that he knew was going to have to be disbanded within 6 weeks. Shame on him.

rtaft · Post by **rtaft** » Sat Mar 08, 2014 3:24 pm

I think this is starting to make a little more sense. :shock: There are 2 sets of accounts that we got forms for. The first set comes with a Schedule of Capital Gains/Losses, T5s, and T5008. It appears to have been closed out in June. The second set of accounts go from June to the end of the year. This has Schedule of Capital Gains/Losses, NR4, and T5008. So the first account has been reported to the gov't as a resident, the second as a non resident.

So when we go to do her taxes, the first set is for her exit tax return, right? What happens with the second set? Do we only report the Capital Gains/Losses for the Canadian gains and not the US gains? Or is the second set for the US taxes only?

nelsona · Post by **nelsona** » Sat Mar 08, 2014 4:13 pm

Gains by non-residents don't get reported in Canada. That is why there is deemed dispositions.

rtaft · Post by **rtaft** » Sat Mar 08, 2014 4:35 pm

Now I'm confused. According to http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... g-eng.html

[quote]After you leave Canada, you are a non-resident for income tax purposes provided you have severed your residential ties with Canada. As a non-resident, you pay tax on[b] income you receive from sources in Canada[/b]. This applies in the year you leave Canada and for each year afterwards, provided you remain a non-resident for income tax purposes.[/quote]

This seems to indicate that any Canadian income is still taxable. Are you saying capital gains after deemed disposition is not taxable?

This post seems to say it is still taxable, but at a higher rate:
http://money.stackexchange.com/question ... tizens-owe

nelsona · Post by **nelsona** » Sun Mar 09, 2014 10:58 pm

Let me be more clear: Capital gains arising in Canada to US residents (and residents of many other treay countries) are not taxable in canada, since they are no longer considered Cdn-sourced.

The answer you read on that other site wes 100%, no 200% wrong.

rtaft · Post by **rtaft** » Mon Mar 10, 2014 8:12 am

Thank you. I think I can handle the departure taxes. I started working on the US side but most of the purchase prices on the capital gains in USD are $0. Only the ones marked as reported to the IRS have a value. I'm guessing I need to go through and do the currency conversion for each purchase from CND to USD. Does this sound familiar?

nelsona · Post by **nelsona** » Mon Mar 10, 2014 9:37 am

You need to report the deemed value as the cost basis, and then make a treaty election using IRS Rev Proc 2010-19.

You also have to decide if she will file dual-status, and you file MFS, or if she will file full-year taxes and join you MFJ.

rtaft · Post by **rtaft** » Sun Mar 16, 2014 8:07 pm

Thanks again for the advice so far. I have the Canadian side finished. I used Turbotax, put all the capital gains/losses on schedule 3 including the deemed dispositions, then duplicated the deemed dispositions on the T1243 and printed everything out to be mailed together. I was expecting TurboTax to subtract all of the capital gains from the previous losses, but it only used a small portion of it, maybe because she had no other income it wasn't needed, I'm not entirely sure. She ended up having losses for the deemed disposition since she had sold everything prior to the investment management swap.

I would prefer to file MFJ in the US since her only income is investment related, but I guess that will depend on what the numbers look like in the end. I was hoping that carrying her past capital losses over would eliminate what she would add to our joint return, plus accounting for taxes already taken out. If we file MFJ, do we take the original leftover capital losses from 2012, and convert that to USD using the exchange rate from 12/31/2012? or the day she moved?

nelsona · Post by **nelsona** » Sun Mar 16, 2014 10:00 pm

Capital losses incurred before she moved to US, ie, before 1/1/2013 are not eligible for use on 1040.

Losses from the deemed disposition cannot be used either.