I Bonds at TreasuryDirect

[canadiandeserter]

nelsona wrote:
> Canada requires yearly income reporting whether you receive the interest or
> let it accrue.
Since Canada taxes interest as they accrue while the US (generally) taxes I-bond interest only when redeemed, if the I-bond holder moves from the US to Canada, no interest would be taxable on either side depending on timing?

While US resident, interest is earned every month but is not taxable as long as the I-bond is not cashed. After moving to Canada, the I-bond is cashed but the Canada-US tax treaty reduces the US tax rate to 0%. Since no interest is accrued while resident of Canada, Canada would not tax the interest included in the redemption, right?

I assume form W-8BEN would need to be submitted to Treasury Direct to claim the 0% treaty rate. Anybody have experience with that?

[nelsona]

We are talking Cdn residents here, but, yes if you are a US resident and come to canada, you will be on the hook for only the interest accrued after arrival in Canada.

As to the interest taxation in US, if you are not a US resident (ie. filing a 1040NR) you wouldn't even need to report the income, as non-residents don't need to report income interest, even if earned in US. No treaty benefit needed.

[canadiandeserter]

Thanks nelsona for the clarification.

Is W-8BEN still the right form to file with Treasury Direct to avoid receiving 1099-INT and raising red flags with the IRS not reporting the interest in the departure year?

[nelsona]

Treasury will always issue a 1099 for interest, regardless. W8-BEN is for withholding. There will be no withholding.

But there is no harm in sending one.

Curious, how, without living in US, were you able to create an account on their website, since it requires a US address?

[canadiandeserter]

Ah, thank you for the details on the Treasury 1099-INT. Should the 1099-INT be ignored on the 1040-NR tax return, or included with a corresponding negative adjustment in Other Income (Schedule 1 Line 8z) to make the IRS 1099-matching systems happy?

Not sure if your last question was directed at me. My Treasury Direct account was opened while I was still a US resident with a domestic address. The plan is to cash out the bonds after terminating US residency to avoid US taxes.

[nelsona]

You would not list it anywhere. The only interest you would report on page 1 would be related to a business in US. Neither should it be listed on the NEC portion.

[nelsona]

It will take some careful timing to not pay ANY US tax on selling the bond, since interest accrues monthly. You would need to sell just days after leaving US.
The accrual for that month would be reportable in Canada.

[nelsona]

Of course, you don't want to force your self to file dual status in your final year, making you pay higher taxrate on your US income from the first part of the year, just to not have to pay a little tax on interest.

[canadiandeserter]

You are right. I think the best plan is to keep the I-bond and pay the taxes that accrue in Canada until the record inflation rate subside, since there are no other "safe" investments that provide a similar yield in Canada.

I-bonds less than 5 years old have a penalty of the last 3 months of interest, so that provides some wiggle room to fully avoid Canadian taxes after moving to Canada.