Recently returned to Canada after working in the US on a greencard for almost 5 years. We are Canadian citizens.
It's clear to us that book value is reset using value on first date of Cdn residency for calculating cap gains owing to CRA on our non-registered investment account.
Need to confirm if cap gains tax liability to US/IRS for cap gains made within non-registered account while living in US is eliminated as soon as we turn our green cards in. Is that correct?
Is there cap gains tax owing to IRS if assets in non-registered account are sold after green card is turned in, but still within the year we were residents in the US and residents in Canada?
US cap gains tax after returning to Canada
Moderator: Mark T Serbinski CA CPA
1. Whether you are liable for US tax on gains will depend on whether you are subject to US expatriation tax. If you are, then you will be liable on deemed sale of all property, similar to the deemed disposition tax you were subject to when you left Canada.
2. That may depend on how you file in that final year and whether you are subject to expat tax, since you still have a choice to file full-year 1040, or dual status with a 1040NR to end the year. If you file dual-status, then gains arising after you left (which, if subject to expat tax would only be gains accrued between your expat date and dec 31), would not be reportable on the 1040NR portion.
If you filed full-year 1040, then then sales would be reported (again, subject to whether you paid expat tax). There would be remedied in the foreign tax credit world, to reduce or eliminate that tax, based on the Cdn tax you would pay, and the fact that you would be considered a Cdn resident (and CRA would not credit any US tax arising from those post-expat sales).
So, you need to determine if you will be subject to expat tax.
If you are not, then the simplest thing is to avoid selling winners until the year after you expatriate. You could still sell in the part of the year, but would then have to decide how you want to file for that year, in terms of overall taxrate and dealing with FTC.
2. That may depend on how you file in that final year and whether you are subject to expat tax, since you still have a choice to file full-year 1040, or dual status with a 1040NR to end the year. If you file dual-status, then gains arising after you left (which, if subject to expat tax would only be gains accrued between your expat date and dec 31), would not be reportable on the 1040NR portion.
If you filed full-year 1040, then then sales would be reported (again, subject to whether you paid expat tax). There would be remedied in the foreign tax credit world, to reduce or eliminate that tax, based on the Cdn tax you would pay, and the fact that you would be considered a Cdn resident (and CRA would not credit any US tax arising from those post-expat sales).
So, you need to determine if you will be subject to expat tax.
If you are not, then the simplest thing is to avoid selling winners until the year after you expatriate. You could still sell in the part of the year, but would then have to decide how you want to file for that year, in terms of overall taxrate and dealing with FTC.
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
Thanks for the quick reponse.
We've confirmed we do not have to pay US exit tax. Intent is to file as dual status (we plan to give up our greencards).
We are moving our non-registered investments from a US-based account to Cdn-based account. If there's no IRS cap gain tax liability because we are not subject to exit tax and we will file as dual status, then we may sell everything and move it over as cash for simplicity of transfer and tax prep (separate and clean set of account statements, etc). It should theoretically be clean either way, but experience as shown it is not.
We've confirmed we do not have to pay US exit tax. Intent is to file as dual status (we plan to give up our greencards).
We are moving our non-registered investments from a US-based account to Cdn-based account. If there's no IRS cap gain tax liability because we are not subject to exit tax and we will file as dual status, then we may sell everything and move it over as cash for simplicity of transfer and tax prep (separate and clean set of account statements, etc). It should theoretically be clean either way, but experience as shown it is not.
Sounds good. I used to call this strategy the Canadian Roth, due to it essentially creating tax-free income.
Make sure you sell your losers before expatriating, and keep your winners until after you expatriate. Any gains you incur before expatriation will of course require US reporting, regardless of how you file for the year. Not sure if you understood this, based on your comment. You can't sell any winners until after you expatriate for this to work.
If you have US mutual funds, you won't be able to transfer those to Canada, you will have to sell, but otherwise transfers between brokers is a non-event tax-wise.
Make sure you sell your losers before expatriating, and keep your winners until after you expatriate. Any gains you incur before expatriation will of course require US reporting, regardless of how you file for the year. Not sure if you understood this, based on your comment. You can't sell any winners until after you expatriate for this to work.
If you have US mutual funds, you won't be able to transfer those to Canada, you will have to sell, but otherwise transfers between brokers is a non-event tax-wise.
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