Hi:
We are Canadians living in US since 2008. I had a life insurance with Cash Value and we never reported to US tax since we understood that cash value less than 10,000 don't need to be reported.
This year we decide to cancel the life insurance and today I got a check for 7K and I don't know how much taxes I need to pay to both countries and which forms I need to fill out next year.
Should I book and pay a tax consultation for this?
Thanks in advance.
Life Insurance with Cash Value
Moderator: Mark T Serbinski CA CPA
When you left Canada you were suppose to inform the insurance comp that you became a non resident. The value at that time was the new cost basis to you in the US. The annual income earned by the policy may have met the exempt accrual ruoles in Canada but should still have been reported to the IRS annually the growth not the value in the policy unless it also meet the IRS rules for deferral.
Now that you surrendered the policy and received $ 7K this is not all taxable only the part that is over your premiums you paid in ( ie your cost basis) is what is income. The CND insurance company however because you are a non resident should be withholding non resident tax on this value and you should receive a 1099R showing the gain and cost basis of the proceeds.
If you did not have tax withheld in Canada YOU should have since you are not taxed in Canada since you left. For IRS purposes you must include all the proceeds as income and return of premiums (tax free) on line 16 a and 16b of your 1040.
Now that you surrendered the policy and received $ 7K this is not all taxable only the part that is over your premiums you paid in ( ie your cost basis) is what is income. The CND insurance company however because you are a non resident should be withholding non resident tax on this value and you should receive a 1099R showing the gain and cost basis of the proceeds.
If you did not have tax withheld in Canada YOU should have since you are not taxed in Canada since you left. For IRS purposes you must include all the proceeds as income and return of premiums (tax free) on line 16 a and 16b of your 1040.
JG
I am a Canadian and also have a Canadian life insurance policy for many years (whole(?) life with guarantee 10 years paid up sort of thing) before I moved to US and I didn't know that we need to report to US until just now. I am still a deemed Canadian resident for tax purpose (CRA).
Can you please tell me which form(s) I should use to report (Form 8938 or 3520)? What sort of the info (growth, interests, etc.) from the policy that I may need to report? Are there anything that might be taxable from existing policy contract? Please advise.
Can you please tell me which form(s) I should use to report (Form 8938 or 3520)? What sort of the info (growth, interests, etc.) from the policy that I may need to report? Are there anything that might be taxable from existing policy contract? Please advise.
tsuciya,
Just for accuracy, you are NOT a "deemed resident of canada", which is reserved for students and govt employees. You are simply a "resident of canada", because of your residential ties, and because you return regularly to vist your family.
if you were to stop visiting them, and instead have them visit you, you would become a "deemed non-resident of canada" by virtie of living and working in US full-time.
Just for accuracy, you are NOT a "deemed resident of canada", which is reserved for students and govt employees. You are simply a "resident of canada", because of your residential ties, and because you return regularly to vist your family.
if you were to stop visiting them, and instead have them visit you, you would become a "deemed non-resident of canada" by virtie of living and working in US full-time.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi Nelsona, thanks for the reply.
Back to my original questions, for the Canadian insurance policy contract, can you please tell me which form(s) I should use to report (Form 8938 or 3520)? What sort of the info (growth, interests, etc. ?) from the policy that I may need to report? Are there anything that might be taxable from existing policy contract?
More questions from your reply:
"because of your residential ties, because you return regularly to vist your family."
- How do they determine if one returns regularly?
"if you were to stop visiting them, and instead have them visit you, you would become a deemed non-resident of canada by virtie of living and working in US full-time. "
- Does it mean that even one has residential ties, if he/she stops visiting, he/she can be deemed as NR of Canada and hence, declared as NR of Canada?
Thanks in advance.
Back to my original questions, for the Canadian insurance policy contract, can you please tell me which form(s) I should use to report (Form 8938 or 3520)? What sort of the info (growth, interests, etc. ?) from the policy that I may need to report? Are there anything that might be taxable from existing policy contract?
More questions from your reply:
"because of your residential ties, because you return regularly to vist your family."
- How do they determine if one returns regularly?
"if you were to stop visiting them, and instead have them visit you, you would become a deemed non-resident of canada by virtie of living and working in US full-time. "
- Does it mean that even one has residential ties, if he/she stops visiting, he/she can be deemed as NR of Canada and hence, declared as NR of Canada?
Thanks in advance.
You determine your own residency. By having family visit you, it shows that is reaaly where the "heart" of the family life is, and this would be considered Deeded non-resident, which is the same as non-resident.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi Nelsona, thanks for the info. If that is the case, what should I do to show CRA that I am out of Canada for the whole years and not come back regularly and hence, deemed non-resident? What form(s) should I file to CRA to deem as non-resident? Please advise.
"You determine your own residency. By having family visit you, it shows that is reaaly where the "heart" of the family life is, and this would be considered Deeded non-resident, which is the same as non-resident."
"You determine your own residency. By having family visit you, it shows that is reaaly where the "heart" of the family life is, and this would be considered Deeded non-resident, which is the same as non-resident."
You simply file a return for the year you left Canada with a departure date when you first left Canada to live in US. No other forms needed. CRA will ask if they need more info.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
So in this situation, what is the tax implication in Canada that I am a "deemed non-resident"?
Can you please elaborate more about simply filing a return for the year I left Canada with a departure date when I first left Canada to live in US? Does it mean I just need to file a return in CRA with the departure date, but no need to pay tax to Canada?
Can you please elaborate more about simply filing a return for the year I left Canada with a departure date when I first left Canada to live in US? Does it mean I just need to file a return in CRA with the departure date, but no need to pay tax to Canada?