FEIE, FTC and/or FTD with US capital gain

MaggieA · Post by **MaggieA** » Sat Feb 17, 2018 4:16 am

Returned to Canada in August 2016 after 15 years in US. We became dual citizens while we were there. In spring 2017 our house in low-priced Atlanta sold, and we bought in high-priced Victoria, cashing in all available savings to assist with this, including a US mutual fund account (Vanguard). Capital gain was around US $50K, of which only about US $15K is taxable in Canada (the gain between our move date and selling the fund). Looking for guidance on how best to minimize total tax bill (CRA + IRS).

I deferred filing 2016 taxes long enough to be able to use FEIE for 2016, which definitely reduced my taxes. For 2017, my earned income is well over the FEIE $100K limit, in good part because of some pesky RSU awards (a first world problem, I know). It's looking to me like I'd be better off this year revoking FEIE in order to get more value out of FTC, or even use the foreign tax deduction instead of the credit.

I actually have enough carried forward Canadian capital loss, from back in the 1990s, to cover the Canadian-taxable capital gain, and I made a substantial RRSP contribution this month as well. But using these to minimize my Canadian tax may just result in sending my Canadian tax refund to Uncle Sam.

I've also been reading about this re-sourcing on the forum here today. Does this apply to my situation? I'm thinking that I shouldn't owe both CRA and IRS on the portion of the capital gain that was earned since I returned to Canada, is that right? Is it possible and advantageous to make the whole gain taxable in Canada? (I would have assumed not, but maybe that's wrong).

Thanks for any guidance.

nelsona · Post by **nelsona** » Sat Feb 17, 2018 5:30 pm

Your capital gains, both those that arose before you arrived in Canada and those that arose after, since they were triggered as a Cdn resident, are simply considered Cdn-sourced. Therefore, for foreign tax purposes, there is no re-sourcing to be done, You simply report the gains as foreign gains, and use the Cdn tax -- which unfortunately in your case is zero -- against the US tax.

it is one of the problems for US citizens coming to Canada.

MaggieA · Post by **MaggieA** » Sun Feb 18, 2018 5:29 am

Thanks for the reply. I received a 1099-B from Vanguard and was happily able to download the mass of numbers into TurboTax (US). I keep this, but then also enter the total gain (and total long-term amount) into Form 1116 (passive income), is that right?