Deemed Disposition Reporting

ResearchScholar2018 · Post by **ResearchScholar2018** » Mon Mar 05, 2018 6:14 pm

Hello All,

My wife and I moved from Canada to the US on April 1st 2017 for work on TN and L1 visas, so I think we will be dual status this year (we pass SPT and were non-residents at beginning of year).

When we leave Canada (March 31st 2017) I understand that this will trigger a Deemed disposition on investments that we owned and will pay capital gains in Canada. We will also have to file form 8833 to step up the cost basis as per the Canada:US tax treaty.

In the US, If we elect to be treated as residents for the entire year (so that we can file 'married filing jointly'), my understanding is that:
1. We will report our Canadian-source income from Jan to March, and claim foreign tax credits for tax paid to canada.
2. We report our W2 income etc as normal from March to December.

My question is, do we need to report the deemed disposition and subsequent tax paid? How would that be handled since, if we elect to be residents the entire year, when Canada imposes the deemed disposition, it would be in the period when we are treated as resident aliens and thus be subject to tax on wordwide income... even though we actually didn't sell the securities in question?

Has anyone dealt with this ?

nelsona · Post by **nelsona** » Mon Mar 05, 2018 6:41 pm

The deemed disposition will be a non-event on your 1040 (I do recommend that you file a joint 1040 rather than attept dual-status, which will not benefit you).

Whatever Cdn income you do report on 1040, you will be alloed to claim the pro-rated Cdn tax on that income.

I might suggest that rather than using tax credit (form 1116) for your Cdn wages, use 2555 to exclude the wages, as this will likely result in a lower US taxrate. Use 1116 on other Cdn income.

However you choose to file in US, will havce no impact on your Cdn departure tax return.

I assume you have taken care of other cross bordr matters such as ddivesting any Cdn investment accounts, and sold of TFSA, etc.

nelsona · Post by **nelsona** » Mon Mar 05, 2018 6:42 pm

By joint 1040 I'm implying you elect to file fiull-year 1040 reporting word income, but getting benefit of joint taxrate and standard deduction.

ResearchScholar2018 · Post by **ResearchScholar2018** » Mon Mar 05, 2018 6:55 pm

Thanks so much for responding.

Yes, we closed the TFSA accounts before leaving Canada. We still have RRSP accounts and a LIRA account in Canada ... so I guess we will need to make sure that we are reporting via FBAR/FACTA.

ResearchScholar2018 · Post by **ResearchScholar2018** » Mon Mar 05, 2018 7:09 pm

and the taxable margin account was transferred to a US brokerage (transferred in-kind). So for those shares we definitely need to figure out how to fill out 8833.

For 8833 my understanding thus far is that we we will be

A) reporting as a result of 6114.
B) Treaty Article XIII (7) for Canada

For part 6, I guess we just put a description of security X.. paid deemed disposition was Y and new cost basis is W?

nelsona · Post by **nelsona** » Mon Mar 05, 2018 8:28 pm

There is an IRS Revenue procedure that explains EXACTLY how to claim this treaty benefit. No need to reinvent the wheel.

http://www.garygauvin.com/WebDocs/IRS/rp-10-19.pdf