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Income tax implications of moving to USA

  • You are an emigrant for income tax purposes if you leave Canada and sever your residential ties with Canada. Even if your Canadian home is not sold, it is likely that you are still considered an emigrant for tax purposes because you have established a permanent home in the USA.
  • You become a non-resident for tax purposes on the date you left Canada, unless your spouse and other dependents came later to the USA, in which case the later date is used.
  • Date of departure must be reported on the Canadian tax return.
  • Gains and losses from deemed dispositions are reported, along with any actual dispositions and any other income otherwise reportable up to the date of departure.
  • Form T1161 requires every person emigrating from Canada and owning property totaling more than $25,000 in value to list properties held at time of emigration, except for the following:
    • Cash
    • Pension plans, RRSP's, etc.
    • Property owned by taxpayer when last became a resident of Canada
    • Personal-use property (clothing, vehicles, household items)

  • A late-filed form T1161 has significant penalties. Due date is normal filing date which is April 30.
  • There may be a deemed disposition of many types of property upon leaving Canada, resulting in capital gain or loss. ALL property owned by an emigrant is deemed to be disposed of and reacquired at fair market value, except for the following:
    • Canadian real estate
    • Capital property or inventory used in a business
    • Stock options and similar rights
    • RRSP's, RRIF's, etc.
    • Life insurance

    The above assets are excluded from the deemed disposition rules on emigration because Canada reserves the right to tax gains on these assets whether or not the individual is a resident of Canada.

  • Form T1243 is used to capture all deemed dispositions upon departure from Canada. The reported items are also reported on Schedule 3 of the T1 personal tax return. The T1243 is attached and filed with the T1 return.
  • An emigrant can elect to defer payment of tax related to deemed disposition of property until time of eventual sale, by filing Form T1244.
  • Re principal residence: gain is exempt if sold in year of departure or the year after. Since principal residence is considered taxable Canadian property, a non-resident must obtain a clearance certificate in regard to the disposition by advising CRA on Form T2062.
  • When a non-resident receives rental income from real property in Canada, the tenant or property manager has to withhold non-resident tax at the rate of 25% on the gross rental income paid to the non-resident. The payer has to send CRA the tax by the 15th of the month following the payment month.
  • Section 216 provides that a non-resident who receives rental income from Canada can elect to have tax withheld on a "net income" basis (gross rental income less rental expenses) instead of on a gross income basis. A non-resident has to send CRA a section 216 return within 2 years from the end of the year in which the rental income was paid. If the section 216 return is filed late, the election is invalid. To have non-resident tax withheld on a net basis, Form NR6 must be completed by the non-resident and the property manager. You must withhold on a gross basis until you receive the approval of Form NR6 back from CRA.
  • Whether or not Form NR6 was filed, a section 216 return must be filed by April 30 of the following year if you dispose of rental property for which you had previously claimed capital cost allowance.
  • OAS and CPP are 100% taxable in the U.S. and are not subject to withholding tax in Canada. Other pensions and annuities (RRSP's, RRIF's) are subject to withholding tax, including lump-sum withdrawals from RRSP.
  • In the year of departure from Canada, tax credits for personal amounts must be prorated for the portion of the year resident and non-resident, claiming only the proportion of the credits applicable to the residence period. Prorations apply to the following: basic personal amount, age amount, spouse amount, child amount, dependant (infirm) amount, caregiver amount, unused credits transferred from spouse, and disability amount.
  • You need to declare all income derived from Canada for the full calendar year, therefore you do not prorate the CPP disability pension income if you have received this income all year long.
  • Double taxation (Canadian and US income tax returns) can be offset by claiming the foreign tax credit on your U.S. tax return. This alleviates the taxation of Canadian income taxed on both the U.S. and Canadian returns.
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Income tax implications of moving to USA | Simkover and Associates Chartered Accountants

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