Confused situation: Canadian/Green Card Holder Canadian Residency Status

[Can001]

Hello,

We got US green card approved and plan to activate the card in a few months. If we apply for re-entry permit and return and work in Canada for a year or two after green cards activation, we will be still considered Canadian tax resident and file Canadian income tax return and report world wide income, right? We have a home, bank accounts, RRSP, etc in Canada. As a green card holder, we understand that we will also be US tax resident and have to file 1040 and report world wide income. Therefore we are dual residents. Is this true?

Thanks

[nelsona]

If you live in Canada -- even as a GC holder or US citizen -- you will be taxed in both countries on world income, with each country getting first crack at the income sourced in that country, and the other country giving credit for taxes due.

You would still be considered -- by treaty -- a resident of Canada.

[formerpatriot]

Can001 wrote:
>
> We got US green card approved and plan to activate the card in a few
> months.
>

I’m curious as to what you mean by “activate the card”.
Once you get a green card, isn’t it automatically “active”?
Like a passport, once you receive it in the mail, it is “active”.
Unlike a credit card, when you receive it in the mail, you have to make a phone call to “activate” it.

[Can001]

Than you so much, Nelsona.

If we sell our principal home after we become US resident (get Green card activated), we understand we are exempt from Canadian capital gain tax as Canadian resident. For US capital gain tax, is the tax calculated based on the cost (price) when we bought it, or only pay US capital gain tax on the appreciation of our Canadian principal home after the day we become US resident (green card activated) under the Canada US tax treaty?

[nelsona]

The treaty allows Cdn residents leaving for the US to reset the cost basis to no lower than the FMV the day you leave canada.
Of course, if you have already lived in your house for two years, you will owe no US tax if you sell within 3 years (no rental) .

For Canada, you have 1 year to sell before tax begins accruing. Your Cdn house is not eligible for Principal Residence exemption once you leave Canada, but they grant you one year extra of PRE once you sell

[Can001]

I really appreciate your advice, Nelsona. Does this also include investing (rental) houses in Canada? What about rental property in the US? Do we have to get the appraisal from professional real estate appraiser?

[nelsona]

I wouldn't suggest buying rental property in US before you move, as it will complicate your Cdn return.

Rental property that you currently have in Canada is not protected by the clause I mentioned. Only the home you are living in at the time you move.

[Can001]

Thanks so much Nelsona.

The treaty allows Cdn residents leaving for the US to reset the cost basis to no lower than the FMV the day you leave canada. Does this apply to green card holder? Does this mean if we enter the US and get green card activated on Oct 1 for example, US will reset the cost basis to no lower than the FMV on Oct 1. Then if we sell our house within three years after becoming US resident, the US capital gains will be based on FMV.

If after activation of green card on Oct 1, we return to Canada and still live in the house and sell it in 2027 (within three years), the US capital gains will still be based on FMV or the cost when we bought it?

[nelsona]

When you sell within three years, there will be no capital gains, unless the value has increased by more than $250K (or $500K if married).

It is not going to make much difference what FMV you use (Oct or later) because if you are taxable in US, you will also have been taxable in canada, so any tax will cancel out.
So just get an FMV when you get your GC. But that leads me to a question, as was asked earlier, do you actually have a GC? If you do, your US taxation has already begun. There is no "activating" a Green Card. Once you have it you have all the rights AND responsibilities (including reporting your income to IRS).

[Can001]

Good afternoon Nelsona. I really appreciate your help. I am sorry for the confusion.

I and my wife actually have US immigrant visa ( I-551) now. If we enter the US and get our visa endorsed ( stamped) at the border on Oct 1 this year and that means we will be US permanent residents (green card holder) from Oct 1. we plan to apply the re-entry permit and return to Canada to live in our principal residence and then sell the house within three years after Oct 1, and if the US capital gains is based on the cost when I bought it many years ago, the capital gains will be over $500K and we will have to pay tax to US on the amount after $500K. If the US capital gains is based on FMV on Oct 1, we will not have to pay any tax to US. I am still not sure.

[nelsona]

If you continue to live in your house, then the October valuation won't really matter (unless you have made too much profit as descibed earlier, because it is still your main home. The 3 year "deadline" only applies once you cease living in your home.

While the following is an immigration issue rather than tax: be very careful on the use or abuse of your 1-131. It is NOT a carte Blanche to avoid living in US. Usually I-131 is used by those GC holders ALREADY living in US, and leaving US temporarily, but still maintaining sufficient US ties, TYhis does not appear to be your situation. You typically need to be living in US when filing I-131.

Be aware that each time you cross the border (and you must present you GC each time) you risk confiscation of your GC, especially the longer you remain a non-resident of US after a year.

And the IRS considers your taxation as beginning when your I-551 is issued. Period. You would need to rely on the tax treaty to exclude your time outside US (which in itself can risk losing GC), but you must file a US return for 2024.

US doesn't have the same rules as Canada, which allows Cdn permanent residents to be outside the country for two or three years at a time without risking losing their status.'
'
So, I would be consulting with a US immigration lawyer on how long you can remain in canada before your GC will be revoked.

[ND]

Two points worth mentioning FYI are:
1 - filing a treaty tiebreaker return jeopardizes your green card
2- making an election Under ITA 45(2) to deem that no Change in Use has occurred - IF you rent out your Cdn property that you plan to claim as principle residence upon later sale.