Capital gain reporting

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migrant
Posts: 8
Joined: Thu Oct 12, 2017 10:07 pm

Capital gain reporting

Post by migrant »

Hello all,
I became Canadian resident in January. Sold US stocks before moving from US. I read that the resulting capital gains are tax exempt if 1040NR is filed. Also, since it was done before I became Canadian tax resident, I don't have to report it on the Canadian side. Most likely I am missing something. Where do I report the gains?

Thank you
nelsona
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Post by nelsona »

That was incorrect. You had to wait until AFTER leaving, as I have recommenced for 15 years, here.

When you leave US, you report all income (on a 1040) until you leave, and then use 1040NR (transferring the income from 1040) to determine the tax RATE (not the income).

For Cdn purposes, had you not sold before, you would have only reported the gains occurring from the day you arrived until you sold (ie. nearly nothing). Now of course there is nothing to report in Canada, since Canada doesn't care what you did before moving to Canada.

Should have consulted here first.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
migrant
Posts: 8
Joined: Thu Oct 12, 2017 10:07 pm

Post by migrant »

Thanks Nelson,

Could you please explain why I need to use 1040. Is it due to dual status or somehing? Should have mentioned before, I stayed less than 31 day in US thus year, so was thinking that I will he ok filing 1040NR for the full year.

Also, if I had sold it after the move then it would have been tax exempt on 1040NR?
nelsona
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Post by nelsona »

Yes you are dual status.

if you consult IRS Pub 519, and see the section on Last Year of residency, it explains how you establish an earlier date than Dec 31, 2017 as your residency termination date (which is the default, since you were still in US on January 1 2017), which in your case is sometime in January, 2017. Note that the current 519 was written for 2016 returns, so you must age each date by one year in your case, to see how it will apply when you file your 2017 return.

Then in the dual-status tax year section, it describes how you must file a 1040NR, but include all world income from before you left on a 1040 statement, which is transferred over to the 1040NR to determine the actual tax.

The 31 days you talk about are for those that have not been considered resident the previous year. It doesn't apply to those leaving US after living there.

And yes, it would have been exempt from 1040NR if you had waited until after you left. Had you not heard of this forum before moving.

It may be worth your while just to file the default method which is 1040 full yea for 2017, at least then you will get all the deductions etc that any US resident gets, and you can use the foreign income exclusion for your Cdn wages, and/or foreign tax credit for 2017. This will be a decision you can make at tax time next spring.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

Correction:
And yes, it would have been exempt from CAP GAINS tax on - 1040NR if you had waited until after you left before selling.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
tony
Posts: 97
Joined: Tue Oct 18, 2016 8:50 pm

Strategy to exit US

Post by tony »

Nelsona,
Are these opinions correct?:
1. the best time to cease from US resident is after August?
2. from Aug - Dec, then one can distribute 401K?
3. Sell all profitting stocks?
Because, all profit will not be taxed in US and the new resident say Canada?

thanks
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Your question is too vague. Don't piggyback on other threads. I won't address your other posts from today because of that.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
tony
Posts: 97
Joined: Tue Oct 18, 2016 8:50 pm

Post by tony »

Really apology for that.

But, I do ask those questions based on my own situation that look similar to the thread.
(if you combine my all other questions, that reeally point out my situation, and I also believe others will have similar degrees)

I thought it will add variations to the given problem that will enrich the forum knowledge.
Due to lack of the knowledge I don't know what to ask, hence it is easier for me if I ask from the point of the existing given situation.
Also, other part would be from my second language of english that I may not put it sentence accurately.

Again, really sorry that I don't mean to ask vague questions. Next time, I will start from my own thread if that's more appropriate.
testone
Posts: 92
Joined: Mon Dec 01, 2008 10:05 pm

Post by testone »

“The 31 days you talk about are for those that have not been considered resident the previous year. It doesn't apply to those leaving US after living there.“

You might want to double check that.
nelsona
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Post by nelsona »

The 31 day rule is for SPT, and is used in determining if you BECOME a resident. There are other criteria that make you CEASE being a resisnt, but the 31-day criteris is not one of them.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
testone
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Post by testone »

I am assuming that the individual did not have a green card and does not meet the green card test.

Treas. Reg. §301.7701(b)-1(c)(4) provides in part: "Thirty-one day minimum. If an individual is not physically present for more than 30 days during the current year, the substantial presence test will not be applied for that year even if the three-year total is 183 or more days. * * *"

So the individual does not meet the green card test and does not meet the substantial presence test. However, you would argue that the individual is considered a resident of the U.S. for at least a portion of the year. Under what test would the individual be considered a resident of the U.S. for any portion of the current year?

Are you suggesting that there is a third test, solely used to determine the date that you CEASE being a U.S. resident, and that this third test is wholly independent of the green card test and the substantial presence test?
nelsona
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Post by nelsona »

Yes. Take a look at IRS Pub 519, which describes the departure year. As I read it, if you were resident in, say 2016 and left in 2017 (regardless of the date), you are presumed to be resident for 2017, unless they can satisfy the requirements of using another (earlier) date.

So, there is a different set of rules to 'make' residency than to 'break' it.

Now, I will agree that, under this narrow possibility that one left in January and never set foot in US again, they could file a 1040NR for the entire year.

However, for the purposes of 104NR and cap gains, if he is not resident of Canada, he cannot exempt cap gain on the basis of being a Cdn resident, so must report the gains on his 1040NR.

There is a reason that 1040NR has space for cap gains reporting, after all.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

There is another thread right now about the entry end of this cap gains issue. If you are no longer Cdn resident, you can't exempt gains made while you were present in US. in my opinion.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

That is the danger of claiming not to be resident anywhere. You lose residential-based treaty rights.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
testone
Posts: 92
Joined: Mon Dec 01, 2008 10:05 pm

Post by testone »

I agree that the individual could not file a 1040NR for the entire year if they spend more than 30 in the U.S. during the year and they lived in the U.S. for prior years. I also agree that if the individual were a dual status alien for the year that capital gains recognized prior to terminating U.S. residency (under U.S. domestic law or under the treaty) would be taxable in the U.S.

However, an individual who is a nonresident alien for the entire year and spends less than 183 days in the U.S. would not be subject to U.S. tax on capital gains at all under U.S. domestic law. Thus, there would be no need to rely on the treaty and exempt these capital gains on the basis of being a Canadian resident.

The space for capital gains on the Form 1040NR is for NRAs who spend 183 or more days in the U.S. during the year. Code §871(a)(2). This would usually be students, diplomats, etc. who are NRAs even though they are in the U.S. more than 183 days during the year.
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