residency questions
Moderator: Mark T Serbinski CA CPA
residency questions
I am USA/Cdn dual citizen. Lived and worked in Canada for last 42 years. In mid Dec 2014 I flew to USA to visit my Mom. On Dec 30 2014, I moved in with my American girl friend in the USA in her house. Still co habitate with her. Present in USA for all of 2015 except for 2.5 months when I went back to Canada to sell my house which I did indeed sell in late July 2015. House was unoccupied while I was in USA. No family ties in Canada. Retired. Bought a house in USA on April 1, 2015. My questions: When did my Canadian residency end and when did my USA residency begin? What forms do I need to file with CRA and IRS?
2 questions:
1. How did you file in Canada for 2014?
2. What income are we making between jan- july 2015?
For US purposes, it really doesn't matter when residency began. That only applies to non-US citizens. You are a citizen and must report al income anyways. By being in US you can't exclude any income by form 2555. Your house sale would still be subject to the US rules on sale (must have lived in for 2 years for there to be a tax exemption of $250K) regardless.
For Cdn purposes, you have 2 choices: Dec 30, 2014 of July 2015.
If you chose the earlier date (you could due to the fact that, despite having a home in Canada, you clearly made your new home in US on that date -- strictly speaking this is the correct date), then you would (a) need to amend your 2014 return, and also would run afoul of the non-resident sale rules for your house, but you would not report any US-sourced income for 2015.
If you chose the later date, 9you could on the basis that you had a residence in Canada -- strictly speaking you outweighed this by living in US, but CRA wouldn't fight it-- then you must report any world income you made up until then to CRA, including any profit you made in the 4 months you owned the second home.
Really it will depend on how much income you had in the first 6 months of 2015 and whre it came from.
Notification to CRA is made by putting a departure date on your return, and then complying with any departure tax requirements, including advising any Cdn payors you dsl with (bank, RRSP, broker, GST credit) that you lived in US from that date.
1. How did you file in Canada for 2014?
2. What income are we making between jan- july 2015?
For US purposes, it really doesn't matter when residency began. That only applies to non-US citizens. You are a citizen and must report al income anyways. By being in US you can't exclude any income by form 2555. Your house sale would still be subject to the US rules on sale (must have lived in for 2 years for there to be a tax exemption of $250K) regardless.
For Cdn purposes, you have 2 choices: Dec 30, 2014 of July 2015.
If you chose the earlier date (you could due to the fact that, despite having a home in Canada, you clearly made your new home in US on that date -- strictly speaking this is the correct date), then you would (a) need to amend your 2014 return, and also would run afoul of the non-resident sale rules for your house, but you would not report any US-sourced income for 2015.
If you chose the later date, 9you could on the basis that you had a residence in Canada -- strictly speaking you outweighed this by living in US, but CRA wouldn't fight it-- then you must report any world income you made up until then to CRA, including any profit you made in the 4 months you owned the second home.
Really it will depend on how much income you had in the first 6 months of 2015 and whre it came from.
Notification to CRA is made by putting a departure date on your return, and then complying with any departure tax requirements, including advising any Cdn payors you dsl with (bank, RRSP, broker, GST credit) that you lived in US from that date.
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
Very useful info, thx. Re your question (1), I filed in Canada as a Canadian resident for 2014. I filed for USA for 2014 as a Canadian resident as well, using foreign tax credit to reduce US tax to 0.00. Except for some bank interest, all income was Canadian source. About $2000 earned, remaining $138,000 pension and RRIFs. Re your question (2), no earned income, no stocks, business, capital gains, etc. in either country. Except for bank interest in both countries, all income Canadian sourced pension and RRIFs. Total income in each of 2014 and 2015 about $140K Cdn gross., so I guess income for 2015 was about $11,667.00 Cdn per month. What do you advise?
... plus the profit from the sale of your hosue in Canada.
So, when did you tell your pension and RRIF that you were now US resident?
Once a US resident, your pension and RRIF are withheld at flat 15%, and are not reported on a Cdn return. You should be calling them today, and then fixing the taxes when you file.
As I said, your US return is unaffected by your move. You are using form 1116 and will continue to do so.
So, back to your choices.
If you chose dec 30 2014 (I would choose Jan 1 2015 at this point to avoid having to amend your 2014 return.) then you file a return with 1/1/15 departure and pay any departure tax. Since your RRIF/pension income is not to be included on this return, You will then have write a letter to reconcile your pension/RRIF income tax to 15%, depending on what was withheld, and then use this income and the 15% tax on form 1116 (general limitation) in US. bank interest for US residents isn't taxable in Canada. CRA may fine you 2500 for not having followed the non-resident procedure when selling your home (or it may not).
If you choose your house selling date, then you need to report the pension RRIF income you got up until that date on a departure return, and pay any departure tax. You will have to do the same procedure I mentioned above for your pension income for the rest of the year.
Either way you need to determine if your hose is taxable in US according to US rules.
So, when did you tell your pension and RRIF that you were now US resident?
Once a US resident, your pension and RRIF are withheld at flat 15%, and are not reported on a Cdn return. You should be calling them today, and then fixing the taxes when you file.
As I said, your US return is unaffected by your move. You are using form 1116 and will continue to do so.
So, back to your choices.
If you chose dec 30 2014 (I would choose Jan 1 2015 at this point to avoid having to amend your 2014 return.) then you file a return with 1/1/15 departure and pay any departure tax. Since your RRIF/pension income is not to be included on this return, You will then have write a letter to reconcile your pension/RRIF income tax to 15%, depending on what was withheld, and then use this income and the 15% tax on form 1116 (general limitation) in US. bank interest for US residents isn't taxable in Canada. CRA may fine you 2500 for not having followed the non-resident procedure when selling your home (or it may not).
If you choose your house selling date, then you need to report the pension RRIF income you got up until that date on a departure return, and pay any departure tax. You will have to do the same procedure I mentioned above for your pension income for the rest of the year.
Either way you need to determine if your hose is taxable in US according to US rules.
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
I have been assuming no 'profit' (read capital gains?) on the sale of my residence in Canada. Bought the house for 70K Cdn in 1988, sold it for 210K in July 2015, lived in it all that time, never rented it out, sold it as soon as I could, clearly this was part of the process of moving. Is my assumption reasonable?
I told RRIF agent of my move a year ago and he seemed clueless re withholding re non Cdn residents, but he did set up 15% withholding at my request when or soon after withdrawals commenced in mid 2015.
Re the main source of my income, employer pension, I think they have been withholding assuming I am a Canadian resident even though I told them of my move some time ago. I will check and arrange for the necessary adjustments. I am sure when it is all sorted out I will get some money back from CRA. I hope they pay me a good rate of interest. :)
My inclination is to go for a Jan 1, 2015 emigration from Canada to USA and hope for no penalty from CRA for not timely reporting the sale of my house as a non resident. I had no idea such a requirement existed, and my lawyer in Canada knew of my move and he didn't tell me anything about it. But I am still asking for advice.
I told RRIF agent of my move a year ago and he seemed clueless re withholding re non Cdn residents, but he did set up 15% withholding at my request when or soon after withdrawals commenced in mid 2015.
Re the main source of my income, employer pension, I think they have been withholding assuming I am a Canadian resident even though I told them of my move some time ago. I will check and arrange for the necessary adjustments. I am sure when it is all sorted out I will get some money back from CRA. I hope they pay me a good rate of interest. :)
My inclination is to go for a Jan 1, 2015 emigration from Canada to USA and hope for no penalty from CRA for not timely reporting the sale of my house as a non resident. I had no idea such a requirement existed, and my lawyer in Canada knew of my move and he didn't tell me anything about it. But I am still asking for advice.
I think this is what I would do, too,
the fact that you will get some money back form Canada shouldn't cheer you too much. You will definitely still probably owe some to US.
But from what you say, you will definitely be responsible for only paying 15% on your RRIF/Pension, and be able to use all that tax as a credit in US. They will not pay you any interest unless it takes them a few months to process your return. It will simply be like a refund. they will merely say Thanks for lending us the money.
In fact, depending on how much you owe, IRS and state may even charge YOU interest for not paying during the year. that's how it works in US.
Since you obviously didn't make US$250K on your house sale,.
not to brag, but this is the best palce for any answers to your tax/CPP/RRIF etc US issues.
For example, did you know that not all your RRIF is taxable in US? Your contributions made by you over the years are taken out tax-free.
Did you do all the 8891 things over the years?
the fact that you will get some money back form Canada shouldn't cheer you too much. You will definitely still probably owe some to US.
But from what you say, you will definitely be responsible for only paying 15% on your RRIF/Pension, and be able to use all that tax as a credit in US. They will not pay you any interest unless it takes them a few months to process your return. It will simply be like a refund. they will merely say Thanks for lending us the money.
In fact, depending on how much you owe, IRS and state may even charge YOU interest for not paying during the year. that's how it works in US.
Since you obviously didn't make US$250K on your house sale,.
not to brag, but this is the best palce for any answers to your tax/CPP/RRIF etc US issues.
For example, did you know that not all your RRIF is taxable in US? Your contributions made by you over the years are taken out tax-free.
Did you do all the 8891 things over the years?
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
Yep, this is a great forum.
Despite the fact that we seem to agree that trying for a Jan 1, 2015 is sensible, I am still concerned that I may not be able to do this. Article IV(2) of the Treaty seems to state that since I had a house in Canada on Jan 1, 2015, but not one in the USA until April 1, 2015, that my residence for tax purposes would be in Canada on Jan. 1. Or maybe in both countries at that time? Do the provisions of the Treaty always apply and override everything else? Can I choose not to use them? If so, are there negative consequences?
Despite the fact that we seem to agree that trying for a Jan 1, 2015 is sensible, I am still concerned that I may not be able to do this. Article IV(2) of the Treaty seems to state that since I had a house in Canada on Jan 1, 2015, but not one in the USA until April 1, 2015, that my residence for tax purposes would be in Canada on Jan. 1. Or maybe in both countries at that time? Do the provisions of the Treaty always apply and override everything else? Can I choose not to use them? If so, are there negative consequences?
An "abode" does not require ownership. You were not in a motel for the first six months of the year, you were LIVING WITH someone.
By treaty, then, you became treaty non-resident of Canada on dec 30th or thereabouts. Even a non-US citizen could make this argument.
Reread what I said earlier: whatever decision you made, CRA would not fight it.
The only issue with the sale of your house is that you failed to "act" like a non-resident.
But, do you know how many non-residents (and their lawyers) actually folw the NR rules when selling? In the transition year, almost no one.
I wouldn't worry about this. Choose Jan 1 and be done with it.
As to using the treaty, some clauses are "benefits", which you can choose or not. Residency howver is not a benefit, it a definition that establishes who you are with respect to the rest of the treaty. That said, in a transition year, there is a littlwe wiggle room. If you had come back to Canada every weekend unt il you sold, that would be a no-brainer. But since you essentially left Canada, and only came back to finalize a few things 3-4 months later, I'm comfortable advising this.
By treaty, then, you became treaty non-resident of Canada on dec 30th or thereabouts. Even a non-US citizen could make this argument.
Reread what I said earlier: whatever decision you made, CRA would not fight it.
The only issue with the sale of your house is that you failed to "act" like a non-resident.
But, do you know how many non-residents (and their lawyers) actually folw the NR rules when selling? In the transition year, almost no one.
I wouldn't worry about this. Choose Jan 1 and be done with it.
As to using the treaty, some clauses are "benefits", which you can choose or not. Residency howver is not a benefit, it a definition that establishes who you are with respect to the rest of the treaty. That said, in a transition year, there is a littlwe wiggle room. If you had come back to Canada every weekend unt il you sold, that would be a no-brainer. But since you essentially left Canada, and only came back to finalize a few things 3-4 months later, I'm comfortable advising this.
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