I am a Canadian citizen who did undergrad in Canada and is now finishing my PhD in the US. I have been on a F1 visa since Fall 2011, and I intend to graduate in Fall 2016, and I have taken a job at a major chemical company in the US, so I will transition to OPT EAD, and then enter the H1B visa lottery in early 2017. My personal situation (long-term) is not 100% set, but I will most likely end up staying in the US and eventually getting a Green Card.
I am currently a non-resident alien for tax purposes in the US, reporting my Canadian income (fellowship and investment income) in Canada, and my US-sourced income (fellowship, nothing else) in the US. I report my US income first, then use the credits against my Canadian return, because I am a tax resident of Canada. This coming year, I will pass the substantial presence test (I will have deferred it due to my F1 status for 5 consecutive years, and no longer be able to defer) and become a resident alien for tax purposes, but this will be beneficial (for my taxes) since it will give me the same basic tax benefits as US citizens.
This will not be beneficial for my Canadian investments. So, I am looking for advice on what to do with my investments before I take a full-time job in the US and my tax residency status changes. My understanding is that I may have to pay departure tax in Canada, and I will still be able to hold my RRSP, but not trade in it, and that I can defer tax on that income until I take payments, by filing a form for deferral with the IRS.
I have heard different information about holding other Canadian investments. I have USD and CAD invested in various ETFs and MFs, some in non-registered accts and some in TFSAs, with two different Canadian brokerages. Some people have told me that I can no longer hold those investments, and will need to sell them and begin trading with a US brokerage exclusively (bringing all that money to a US bank and closing my Canadian accounts, which sounds like a buy/sell gains/loss tax nightmare). Some other info I've received suggests that I can still hold those accounts, but it will be exceedingly complicated to report them to the IRS (but that's also why I will have a real job, and be able to pay someone to help me file properly), and that there are limitations on "how much" a Canadian brokerage can do for me while I am no longer a tax resident of Canada. This brings me to more of my confusion -- will Canada no longer by my country of primary taxation, then, but I would still need to file a Canadian tax return disclosing my income, and which income specifically? US-sourced, Canadian-sourced or all? I don't yet understand how to use the tax treaty to my advantage to avoid double taxation and I do not yet understand 'which income goes where'.
Is there anyone who has gone through a similar process before, and, what are the steps I should take to get this all in order?
I would appreciate to hear your take, nelsona.
Thanks in advance,
Canadian finishing PhD in US and beginning work there
Moderator: Mark T Serbinski CA CPA
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
There is nothing unusal about your situation, except that you already have US-based accounts.
Read up on EMIGRANT steps here and on CRA website and come back with a few questions.
You should be transferring any investments held in Cdn non-RRSP account to a US brokerage, and selling off any that cannot be transferred.
You will fiel a departure return o=in the year you become non-resident. Your departure date will be the day you get a work status (H1/TN, etc).
Read up on EMIGRANT steps here and on CRA website and come back with a few questions.
You should be transferring any investments held in Cdn non-RRSP account to a US brokerage, and selling off any that cannot be transferred.
You will fiel a departure return o=in the year you become non-resident. Your departure date will be the day you get a work status (H1/TN, etc).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
Just to be clear, is my departure date the date that I get a work status VISA (H1B or TN) or is it the date that I transition to the OPT status on F1, since that is when I would be taking up full-time employment? According to the CRA website, it would seem to me that I would no longer be a resident of Canada as soon as I graduate with my PhD, since I will no longer intend to return and I don't have any connections there (bank accounts, but no property (childhood home?) etc))
How will my tax return situation work? I will become a resident alien in the US this coming fall, but will I continue to be a resident of Canada for tax purposes until I file a departure date? Does that mean that I will file global income in the US, and then report all that income also in Canada, and claim the tax treaty to avoid dual taxation in Canada?
The Emigrant section of the CRA website says you can sitll hold TFSAs, and directs you to the TFSA website, where the Guide is a dead link. And I have read up a bit on this in other venues, but it is unclear to me whether or not those sould be left alone.
Does it complicate the situation at all that I am holding US-listed ETFs in USD in my Canadian (USD) Brokerage account?
Thanks nelsona
How will my tax return situation work? I will become a resident alien in the US this coming fall, but will I continue to be a resident of Canada for tax purposes until I file a departure date? Does that mean that I will file global income in the US, and then report all that income also in Canada, and claim the tax treaty to avoid dual taxation in Canada?
The Emigrant section of the CRA website says you can sitll hold TFSAs, and directs you to the TFSA website, where the Guide is a dead link. And I have read up a bit on this in other venues, but it is unclear to me whether or not those sould be left alone.
Does it complicate the situation at all that I am holding US-listed ETFs in USD in my Canadian (USD) Brokerage account?
Thanks nelsona
OPT still entitles you to not count days of presence, and you are still in F1.
So, it is TN or H1 that will start your US residency. That will also start your payment of US social security taxes.
Not sure where you are reading on CRA website, but merely finishing school doesn't change your being considered a student.
You are misunderstanding how becoming a non-resident works. You INFORM CRA when you file your tax return that you BECAME a non-resident on your departure date. That could be as much as a year and a half after you became non-resident.
In the mean time you must ACT like a non-resident, (and resident of US) by closing your investment accounts, informing your bank and RRSP that you are non-resident, etc.
TFSAs can be held by non-residents of canada of course. But you will be a US resident, this subject to tax on your TFSA and onerous reporting requirements.
That is whay I'm asking that you red up a little on this site, since you are moving to US like almost everyone on this site, and have all the answers here.
You are going to move all your non-RRSP investments to US. as I said already.
You are already familiar with reporting the same income in 2 countries. After all you were reporting you US income in Canada, no?
After your departure date, there will be no income form Canada to report on the CDn return.
So, it is TN or H1 that will start your US residency. That will also start your payment of US social security taxes.
Not sure where you are reading on CRA website, but merely finishing school doesn't change your being considered a student.
You are misunderstanding how becoming a non-resident works. You INFORM CRA when you file your tax return that you BECAME a non-resident on your departure date. That could be as much as a year and a half after you became non-resident.
In the mean time you must ACT like a non-resident, (and resident of US) by closing your investment accounts, informing your bank and RRSP that you are non-resident, etc.
TFSAs can be held by non-residents of canada of course. But you will be a US resident, this subject to tax on your TFSA and onerous reporting requirements.
That is whay I'm asking that you red up a little on this site, since you are moving to US like almost everyone on this site, and have all the answers here.
You are going to move all your non-RRSP investments to US. as I said already.
You are already familiar with reporting the same income in 2 countries. After all you were reporting you US income in Canada, no?
After your departure date, there will be no income form Canada to report on the CDn return.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Just to clarify when you will become a US resident, (which is the only way you can become a Cdn non-resident) is when your wages have FICA and Medicare withheld.
F-1 students (including OPT's) are exempt if they still can exclude days in US as presence, which is generally 5 years. depending on exactly how many years you have been in US, you may or may not qualify for this exemption anymore (after Jan 10, 2016). If that is the case, then you will be resident of US from that date, even before you graduate, if you otherwise have no dependents and home in Canada.
But ity is clear from your posts that you will become non-resident at some point in 2016,and should be taking the steps needed to avoid securities violations by having Cdn brokerage account, and the headaches of having a tFSA.
I would even be considering closing TFSA before year-end, so hat you will not have to report them on your 2016 US tax return.
F-1 students (including OPT's) are exempt if they still can exclude days in US as presence, which is generally 5 years. depending on exactly how many years you have been in US, you may or may not qualify for this exemption anymore (after Jan 10, 2016). If that is the case, then you will be resident of US from that date, even before you graduate, if you otherwise have no dependents and home in Canada.
But ity is clear from your posts that you will become non-resident at some point in 2016,and should be taking the steps needed to avoid securities violations by having Cdn brokerage account, and the headaches of having a tFSA.
I would even be considering closing TFSA before year-end, so hat you will not have to report them on your 2016 US tax return.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
I have read through many of the strings on the forum and they have indeed helped answer most of my questions. As you can probably tell, I am trying to make sure I understand this process (uncomplicated as it may be) as best as I possibly can to avoid making any errors on tax returns that will have to be corrected later, and any bad decisions with the money I have been saving, etc.
I am still confused by the transition from non-resident alien to resident alien. I understand that OPT entitles you to not count days of presence, but the exemption limit on that, as I understand it, is 5 years. I have been in the US since Aug 2011, and I have been filing form 8843 every year, to exclude all the days of the year from the substantial presence test. Since I can only do this ('fail' the test) for 5 years total, I will become a resident alien for tax purposes in the USA sometime in the summer of 2016. This means that on my Canadian 2016 return, I will inform the CRA that I have become a non-resident of Canada, and inform them of my departure date (summer 2016).
I also don't know if this is a problem or not, but when I reported how many days I was present in the US for in all of the subsequent years, I reported 365 days on Form 8843. This isn't really true, since I was actually out of the USA for 10-20 days every year, either back in Canada or elsewhere. I never excluded these days, because I didn't know how to do so in the tax software I was using (the University here gave us free access to this software that more or less works most of the time, but is a simplistic interface designed to push you through the process). I realize that the overall effect of this is that I become a resident alien slightly sooner, but does the IRS care that this is information for the substantial presence test is not entirely accurate, or is not important?
As I understand it, I will become a resident alien in the USA in the summer of 2016 (at this point I will have used up my 5 years of exemption from the substantial presence test) and I will then notify the CRA on my 2016 return of my departure date (the date I became a resident alien). BEFORE this date, I should also notify my brokerages of thhe transition, which will force me to liquidate my MFs, ETFs, etc. I understand that I can leave my RRSP intact, but that selling off TFSAs is a good idea.
Since I will become a resident alien in the US with the departure date being summer 2016, it is a good idea to sell off all of my Canadian-held brokerage investments before the end of this year (2015), so as to avoid having to report them on my US 2016 return. If I don't sell off everything (other than my RRSP, which I understand still have to be reported to the IRS) before 2016 starts, and I become a resident alien of the USA in 2016, then I will have held Canadian investments in 2016 as a resident alien of the USA and will need to report them to the IRS, which can be cumbersome (but presumably will employ someone to do it for me). Is that accurate?
Thank you for all your help.
I am still confused by the transition from non-resident alien to resident alien. I understand that OPT entitles you to not count days of presence, but the exemption limit on that, as I understand it, is 5 years. I have been in the US since Aug 2011, and I have been filing form 8843 every year, to exclude all the days of the year from the substantial presence test. Since I can only do this ('fail' the test) for 5 years total, I will become a resident alien for tax purposes in the USA sometime in the summer of 2016. This means that on my Canadian 2016 return, I will inform the CRA that I have become a non-resident of Canada, and inform them of my departure date (summer 2016).
I also don't know if this is a problem or not, but when I reported how many days I was present in the US for in all of the subsequent years, I reported 365 days on Form 8843. This isn't really true, since I was actually out of the USA for 10-20 days every year, either back in Canada or elsewhere. I never excluded these days, because I didn't know how to do so in the tax software I was using (the University here gave us free access to this software that more or less works most of the time, but is a simplistic interface designed to push you through the process). I realize that the overall effect of this is that I become a resident alien slightly sooner, but does the IRS care that this is information for the substantial presence test is not entirely accurate, or is not important?
As I understand it, I will become a resident alien in the USA in the summer of 2016 (at this point I will have used up my 5 years of exemption from the substantial presence test) and I will then notify the CRA on my 2016 return of my departure date (the date I became a resident alien). BEFORE this date, I should also notify my brokerages of thhe transition, which will force me to liquidate my MFs, ETFs, etc. I understand that I can leave my RRSP intact, but that selling off TFSAs is a good idea.
Since I will become a resident alien in the US with the departure date being summer 2016, it is a good idea to sell off all of my Canadian-held brokerage investments before the end of this year (2015), so as to avoid having to report them on my US 2016 return. If I don't sell off everything (other than my RRSP, which I understand still have to be reported to the IRS) before 2016 starts, and I become a resident alien of the USA in 2016, then I will have held Canadian investments in 2016 as a resident alien of the USA and will need to report them to the IRS, which can be cumbersome (but presumably will employ someone to do it for me). Is that accurate?
Thank you for all your help.
The fact that you reported days in correctly is not important. You used 8843 to exclude days under the test, and that is what counts.
Re-read carefully the rules for F-1 using 8843. I'm quite sure it does not say "5 years total" but rather that you cannot use it for the entire year once you have used it at all in the previous five years. I may be wrong but you will check of course.
So, 2011, 2012, 2013, 2014, 2015 were your five years, so you will become US tax resident on Jan 1, and a Cdn non-res on that date.
Thus the need, to avoid big headaches, to get rid of TFSA before dec. 31. This coincides with you need to get ris of TFSA anyways, so no harm there.
You can then work on the transfer/sale of your Cdn holdings. No real rush to do this.
You may also want to crystalize any gains in your RRSP (already explained) before dec 31 too.
Re-read carefully the rules for F-1 using 8843. I'm quite sure it does not say "5 years total" but rather that you cannot use it for the entire year once you have used it at all in the previous five years. I may be wrong but you will check of course.
So, 2011, 2012, 2013, 2014, 2015 were your five years, so you will become US tax resident on Jan 1, and a Cdn non-res on that date.
Thus the need, to avoid big headaches, to get rid of TFSA before dec. 31. This coincides with you need to get ris of TFSA anyways, so no harm there.
You can then work on the transfer/sale of your Cdn holdings. No real rush to do this.
You may also want to crystalize any gains in your RRSP (already explained) before dec 31 too.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
Thanks nelsona, I understand that my date of departure will be Jan 1 2016, and that I will file a single resident alien tax return in the US for 2016. And, in Canada, I will file as a non-resident. Will Canada *ask* me to file NR73, or will I voluntarily file that with my 2016 non-resident return?
I do not understand your comment on 'then working on the sale of other holdings' (non-TFSA). If I become a non-resident of Canada on Jan 1 2016, don't I also want to liquify any non-registered accounts as well to avoid having to report these to the IRS on my 2016 return? Or is it 'easier' to report non-registered investments than a TFSA?
But, don't I also have to notify my brokerages that I will become a non-resident of Canada on Jan 1 2016--so shouldn't I be telling them BEFORE that date, and then they will tell me I have to sell anyways?
What am I misnuderstanding? Many thanks.
I do not understand your comment on 'then working on the sale of other holdings' (non-TFSA). If I become a non-resident of Canada on Jan 1 2016, don't I also want to liquify any non-registered accounts as well to avoid having to report these to the IRS on my 2016 return? Or is it 'easier' to report non-registered investments than a TFSA?
But, don't I also have to notify my brokerages that I will become a non-resident of Canada on Jan 1 2016--so shouldn't I be telling them BEFORE that date, and then they will tell me I have to sell anyways?
What am I misnuderstanding? Many thanks.
You want to get rid of the TFSA before jan 1 due to the onerous fillings associated with both the TFSA and its contents (3520 and PFIC), along with the fact that they are fully taxable in US (even on earlier uncrystallized gains) .
There are the same filing requirements for investments in normal accounts, too However not 3520 for the account itself, and since your holding will be subject to deemed disposition, you don't have to worry about IRS coming for pre-arrival tax on any of these. tax is zeroed out essentially on Jan 1.
since you can't bring any Cdn MFs down to US, I would be selling these now. But anything else you have in brokerage accounts should be transferable to US, and won't attract PFIC.
I'm just putting things in priority. If you can divest yourself of everything in the next 2 weeks, good on you. Start with the TFSA.
You cannot buy from a Cdn brokerage once you move (technically you couldn't when you were physically in US either, but that is for another day). But they will let you sell, and your US broker will be able to request transfers.
There are the same filing requirements for investments in normal accounts, too However not 3520 for the account itself, and since your holding will be subject to deemed disposition, you don't have to worry about IRS coming for pre-arrival tax on any of these. tax is zeroed out essentially on Jan 1.
since you can't bring any Cdn MFs down to US, I would be selling these now. But anything else you have in brokerage accounts should be transferable to US, and won't attract PFIC.
I'm just putting things in priority. If you can divest yourself of everything in the next 2 weeks, good on you. Start with the TFSA.
You cannot buy from a Cdn brokerage once you move (technically you couldn't when you were physically in US either, but that is for another day). But they will let you sell, and your US broker will be able to request transfers.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
In such situations, transferring assets in-kind to a U.S brokerage can be challenging. I've heard that Interactive Brokers can do this? www.interactivebrokers.com - Based in the U.S but possible to hold certain investments in $CDN, and of course others in $USD. Anyone have experience with them, or suggest alternatives/advice on the topic?
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
nelsona, you're not going to like this:
I sold my TFSA assets and non-registered CAD equity earlier this week, but with T+3 and the markets being closed for several days during this time of year, the sales won't be finalized until early January. ******. Very dumb planning on my part.
I WANTED my departure date to be Jan 1 2016, since then I wouldn't have to file with the CRA for 2016, but now it seems like I will have Canadian investment income (and losses) based on the sell dates above in tax year 2016 (sales won't be finalized til 2016, instead of the end of 2015 as planned).
So, it seems to me that I can either 1) continue as planned, claim I departed Canada Jan 1 2016, and file a non-resident CRA return in 2106 for that income above. But, will my brokerage have to report to the IRS that I "held" those investments for ~2 days in 2016, and will I have to deal with 3520 and PFIC as US resident in 2016? Even though the assets were in the sell queue and I didn't actually really "hold" them? I don't know/have not been able to find any info on this unusual situation.
Or, option 2): delay my departure date until mid-2016, and file dual-status for 2016 (more expensive to pay a CPA to do it?) filing for the first part of the year as a Canadian resident and the second as a US resident (standard return, then no return for CRA; 1040NR, then 1040 for IRS). This would seem to avoid the investment income problem, but creates more forms to fill out, and I think based on the substantial presence test that the US will consider me a resident for all of 2016, by default, so maybe this doesn't work anyways.
Is there a simpler way out of this problem that I created? I was *trying* to do the right thing and simplify things. Surely there is some sort of ignorance clause? haha
Thanks, all the best.
I sold my TFSA assets and non-registered CAD equity earlier this week, but with T+3 and the markets being closed for several days during this time of year, the sales won't be finalized until early January. ******. Very dumb planning on my part.
I WANTED my departure date to be Jan 1 2016, since then I wouldn't have to file with the CRA for 2016, but now it seems like I will have Canadian investment income (and losses) based on the sell dates above in tax year 2016 (sales won't be finalized til 2016, instead of the end of 2015 as planned).
So, it seems to me that I can either 1) continue as planned, claim I departed Canada Jan 1 2016, and file a non-resident CRA return in 2106 for that income above. But, will my brokerage have to report to the IRS that I "held" those investments for ~2 days in 2016, and will I have to deal with 3520 and PFIC as US resident in 2016? Even though the assets were in the sell queue and I didn't actually really "hold" them? I don't know/have not been able to find any info on this unusual situation.
Or, option 2): delay my departure date until mid-2016, and file dual-status for 2016 (more expensive to pay a CPA to do it?) filing for the first part of the year as a Canadian resident and the second as a US resident (standard return, then no return for CRA; 1040NR, then 1040 for IRS). This would seem to avoid the investment income problem, but creates more forms to fill out, and I think based on the substantial presence test that the US will consider me a resident for all of 2016, by default, so maybe this doesn't work anyways.
Is there a simpler way out of this problem that I created? I was *trying* to do the right thing and simplify things. Surely there is some sort of ignorance clause? haha
Thanks, all the best.
Well, you screwed the pooch on this, didn't you. But all is not lost, although I'm loathe to give you more advice that you will ignore....
Since you didn't manage to sell in 2015, you probably shouldn't declare your departure date as dec 31 either, as now you have the advantage of delaying payment of deemed 9or real) disposition tax on these items until spring 2017.
Now your 2015 normal Cdn will only have real dispositions that you've already completed. Your 2016 Cdn departure return will have either real or deemed dispositions, depending on the date you choose. And your 2016 US return (unless you file dual status) will include the real dispositions, and you will need to apply the treaty to use the deemed departure price as your new cost basis, or you will just use the normal foreign tax credit process. You really tied your hands here, particularly if you are not in Canada this weekend.
based on your earlier posts, you can only file dual status if you are not physically in US on January 1st. If you are, and since you will spend enough time in US to satisfy SPT, jan 1 will be your residency start date and you will have to file full year and report these January sales and 3520, pfic, etc. So you may wish to wait in Canada (if you are there) until sales go thru and these accounts close.
Dual status prevents you from claiming standard deduction and filing jointly, but if you are not married, this shouldn't pose to much of a tax increase. It would save you the cost headache of the extra filings.
I don't see a problem still declaring your departure as jan xx for Canada (and using Jan xx as your US residency starting date, as long as you have no residence in Canada right now and are not physically in US until that date. But you will have to file your Cdn departure return next year, not 2015.
That will be my final word on this... ignore at your peril.
Since you didn't manage to sell in 2015, you probably shouldn't declare your departure date as dec 31 either, as now you have the advantage of delaying payment of deemed 9or real) disposition tax on these items until spring 2017.
Now your 2015 normal Cdn will only have real dispositions that you've already completed. Your 2016 Cdn departure return will have either real or deemed dispositions, depending on the date you choose. And your 2016 US return (unless you file dual status) will include the real dispositions, and you will need to apply the treaty to use the deemed departure price as your new cost basis, or you will just use the normal foreign tax credit process. You really tied your hands here, particularly if you are not in Canada this weekend.
based on your earlier posts, you can only file dual status if you are not physically in US on January 1st. If you are, and since you will spend enough time in US to satisfy SPT, jan 1 will be your residency start date and you will have to file full year and report these January sales and 3520, pfic, etc. So you may wish to wait in Canada (if you are there) until sales go thru and these accounts close.
Dual status prevents you from claiming standard deduction and filing jointly, but if you are not married, this shouldn't pose to much of a tax increase. It would save you the cost headache of the extra filings.
I don't see a problem still declaring your departure as jan xx for Canada (and using Jan xx as your US residency starting date, as long as you have no residence in Canada right now and are not physically in US until that date. But you will have to file your Cdn departure return next year, not 2015.
That will be my final word on this... ignore at your peril.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Just one final note. Through all this you kept saying Jan 01, 2016 would be your departure date 'since then I wouldn't have to file with the CRA for 2016'.
You would have had to jan 01 2016 would be in (obviously) 2016. I think you meant, and I did not clarify, that December 31, 2015 would have been your departure date if you wanted to file a departure return. Or, you would have made it jan 1 and not sold everything until after jan 1, like you are doing now.
You would have had to jan 01 2016 would be in (obviously) 2016. I think you meant, and I did not clarify, that December 31, 2015 would have been your departure date if you wanted to file a departure return. Or, you would have made it jan 1 and not sold everything until after jan 1, like you are doing now.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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mifter1989
- Posts: 6
- Joined: Tue Dec 08, 2015 10:22 pm
- Location: USA
Thanks nelsona, I appreciate all your help. I was not, of course, trying to ignore your advice, but rather had it in my mind that new year's day was Saturday and that markets were open all week... errgh... The orders were all filled, but not all of it has become available yet so I can't close the accounts..I don't think...maybe it's worth a call to the broker just to be sure...