1040NR and Should we move our tax home to US next year?

Hi everyone,

This is our first year filing US taxes and I've done my best to scan through all the relevant posts, but am still a little confused about taxes and tying up loose ends in Canada. Any advice would be much appreciated!

For all of 2008, Husband and I were J-1 and J-2 respectively and we will be filing our Canadian taxes as residents. For our US taxes, I completed the 1040NR and 8843, and husband filed 8843 only since he had no US income (only Canadian). We still have our Canadian bank accounts (earning some interest), credit cards, DL and OHIP because we were on the J non-permanent visa during that time. Then, as of January 1, 2009, we changed to H1-B and H4 visas, and are now in first stage of employment-based green card application. We have no plans to return to Canada for the time being (maybe when we retire!)

Questions:

1) Did I submit the right forms for 2008 taxes?

2) For next year's taxes, should we move our tax home to the US? How do we do this properly? It sounds like there are specific forms to fill out with the CRA, and I saw something about 'exit forms' in one post...Right now, we still have a lot of ties to Canada in the form of RRSPs, bank accounts, credit cards, DL and health card. I've read other posts that say to close and cancel everything - is this the best thing to do? Which things can I keep without a problem, and which things do I definitely have to cancel? I'd like to hang onto my credit cards since we have very little US credit history. It's already March, so I'm wondering if the CRA deem us as Canadian residents for part of 2009. Should I try to backdate the effective cancellation date on OHIP and DL?

Thank you very much!

1) Hmm... I don't think you can use Form 8843 if you're J-2, and J-1 can only use it if it's a student J-1. If your pay was subject to FICA withholding (social security/medicare) and they actually withheld it and you didn't claim it back on Form 843 though, it doesn't make that much difference because you don't owe anything. (Tell the IRS you made a mistake and shouldn't have filed the form).

2) If you're planning on staying indefinitely then yes, you should move your tax home to the US. The IRS gets annoyed if you file non-resident for more than five years running and I assume you're going to try and stay for at least six years if your husband is H-1B.

You will have to sever residential ties to Canada and pay departure tax if you owe any: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html (I put some posts on here about this tax that were wrong, because the way it works changed some years ago).

Basically you have to get rid of everything only a resident could get, such as the DL, healthcare card. You can have a Canadian bank account and credit card provided you've informed the bank you are non-resident for tax purposes. You can also keep your RRSPs but you need to notify the IRS next year on Form 8891 when you file your 1040. You can also own Canadian real estate, but it cannot be your principal residence (so you cannot claim the GST rebate).

What I would do in your situation is tell them you moved your tax home on January 1st and then you save yourself the hassle of filing dual-status, but you need to get rid of your residential ties now. Inform the CRA you departed for tax purposes on December 31st.

In theory the CRA could deem you resident for the first three months but I wouldn't worry about it too much, the one thing that does tip them off is if they get stuff from the bank that indicates you're still resident. A court would allow you a reasonable amount of time to sever your ties although "reasonable" is obviously subjective.

Hi Steve,

Thanks so much for the advice. Just wanted to follow up...

1) I've called the IRS a few times now, and they advised us to send Form 8843. I think it's because we're exempt individuals on the J visa (researcher category) and he had no US income. Because I'm the spouse of a J-1 researcher, they said that I automatically have to file 8843 as well. Does that make sense? I will just leave it be for now, since that's what IRS instructed us to do.

2) Yes, we're planning on staying at least 6 years, if not longer. We don't own any property in Canada, and we took all our belongings with us (clothes, furniture, car). If we don't have anything under the deemed disposition category, do we still complete the same form?

I'll be canceling our DLs and health cards ASAP, and sorting out the banking. I'm pretty sure one of the bank accounts I have does not allow non-resident accounts, so I'm not sure if I'll be able to get an NR slip from them next year.

Also, we technically entered the US on January 2, 2009 on our H visas. My husband's H1B job officially began January 1, 2009 but we didn't cross the border until a day after. Shouldn't I tell CRA that I moved my tax home as of 01/02/09? Because technically I didn't enter the US until two days later...maybe this is a minor detail, but I don't want to make any assumptions.

1) Like I said above, it's largely academic if you worked and actually paid the FICA withholding. The main effect of Form 8843 is to exempt you from them. If you're actually planning on staying then there isn't much point being exempt as you benefit eventually from social security and medicare. I remember going to an IRS seminar some years ago and they told us that people on F-2 can't file Form 8843, but they can't work anyway so it was a moot point. J-2 is kind of a grey area because you can work in that category, the instructions say "attending a course of study" though. I think whomever wrote the instructions wasn't aware that J-2 spouses can get work authorization.

What you're actually supposed to do is put down "non-resident alien student" above the dotted line in answer to question 6 on the W-4 so your employer doesn't withhold FICA taxes from your pay, and if any employer has actually bothered to find the extremely obscure instructions that tell them to do that and followed them, I think they deserve some sort of prize!

2) Say you entered on January 1st, otherwise you'll end up having to file a T1 to cover one day and dual-status to cover that day as well. Tell the CRA you left on 31st December.

Bear in mind that moving your tax home is not necessarily the date you physically entered the country, it's the date you established your principal residence in a certain jurisdiction. That could be before or after the date you physically moved there, it depends on your intent and the amount of residential ties you have.

Thanks so much for the advice. I'm going to get our DL and health canceled, contact my bank, and call CRA asap! One last question - we don't own any property in Canada, so I'm wondering what kind of exit taxes we will need to pay. Do you know which forms I would need to fill out to properly move my tax home to the US?

Departure tax: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

Basically it's a capital gains tax and anything in a tax shelter (RRSP) and your principal residence are exempt so say you have shares in a company outside of an RRSP, that will be subject to it.

There aren't any specific forms to move your tax home, it's just a case of filling the tax returns in correctly, i.e. pro-rated T1 in Canada and dual-status in the US.

Thanks, Steven!

I was looking for a post like this. I am on 1 year TN (since Sept 08) so I filled as a NRA in the US and closer connection with Canada. I don't really have anything left in Canada (no house or even DL). So I was thinking to move my tax home to the US for 2009. The company also want me to stay longer, they are willing to do the H1B to greencard process.

- So the way I understand it I don't I need to fill anything to let CRA know that I am leaving, but I simply indicate on my 2009 taxes that on Dec 31st 2009 I was in the US?

- or should I tell them sooner? CRA knows my situation for 2008 (I called them in October to discuss with them) and they kept sending me the UCCB/CCTB and as far as I am aware, they will keep doing so until I am not a resident. So I guess that if I wait a year to tell them, I will have to reimburse the 2009 payments. Which I don't mind, but then I would certainly have to fill a T1 just because of that, would that put me in a double-taxation scenario?

- If I cut the tie and move my tax home, how does it impact a potential TN renewal and also multiple visits to Canada (remember I don't have Quebec DL anymore)?

-If we start H1B process while I am still on a TN, can I still go back and forth between US and Canada (planing to attend a congress in Toronto in May)?

- So the way I understand it I don't I need to fill anything to let CRA know that I am leaving, but I simply indicate on my 2009 taxes that on Dec 31st 2009 I was in the US?

No, you indicate on your current tax return that you left on December 31st 2008 if you want to move your tax home to the US for 2009. If you're already filed it, then simply call the CRA and notify them.

- If I cut the tie and move my tax home, how does it impact a potential TN renewal and also multiple visits to Canada (remember I don't have Quebec DL anymore)?

Visits are unaffected because your principal residence is in the US, assuming you are only visiting. If you get a job in Québec it would get more tricky.

TN-1 status is a very long-winded subject when it comes to US tax filing, I've had this discussion with someone fairly high up in the IRS and the short answer is that they don't know the answer to the question, they're taking legal advice on it which has yet to be tested in court. In the absence of definitive guidance from the courts they're basically treating it as any other non-immigrant category for tax filing.

Technically as a person who is filing as a resident of the US then you are saying you are not there for "temporary" work, however CBP never really ask about your tax filing status and given that the IRS themselves are not clear on the issue themselves, I wouldn't worry about it.

-If we start H1B process while I am still on a TN, can I still go back and forth between US and Canada (planing to attend a congress in Toronto in May)?

Well there's no chance you're going to get anywhere with it by May so that's not an issue, be lucky to get the labour certification done by then let alone the I-129 filing and it's subject to a quota as well.

Frankly it's simpler just to get them to put a Canadian address on the I-140, use consular processing and skip H-1B altogether because odds are you won't get it anyway unless you work for an academic institution.

This article is worth reading.

I am in the non-profit sector, so no H-1B cap for them. I don't have much ties (if any) in Canada, hence we thought that TN - H1 - EB would be safer than TN to EB.

And for the tax home, I guess I'll we have some patching to do. It's very easy to discuss with CRA, but the QC counter-part is a real pain. That's why I wrote that I was in Quebec on Dec 31st when I did my federal taxes. But on one side, QC wants all my taxes, but on the other they are asking me to reimburse every payments they did since I moved in September and the health insurance is ridiculous and cover only 50$ per year... What's the point? Don't bother! So now I am thinking to send them only my QC revenue and not the US one.