Canadian on TN Visa - first time filing in US

[jyj.081]

Hello -

I am looking for a little bit of clarity on my tax situation.
I moved to the US in mid October '08. Previous to that I was living/working in Canada.

I spoke to an accountant briefly about severing my Canadian residency for tax purposes and there were several things she suggested I do. As of now, I have yet to do them all. Currently I still own property in Canada - it is being rented out. Other than that, I still have some RRSPs, a bank account, and a credit card. I have bought a car here in the US, with US insurance & registration and I have a Texas state licence. I haven't cancelled my Alberta Health Care as of yet. I'm wondering where all this will situate me in terms of being a resident/non-resident in either country and how it will all affect me.

the accountant has suggested that i will be filing a Departing Canadian return and a US return (resident or non-resident, i am unsure)

I'm sure there are plenty of you who have been in this situation. Any advice?

Thanks,
jen

I've been reading these forums but as this is my first time even thinking about the US tax system...i'm very confused.

[Steven]

With all those ties to Canada for the last couple of months of 2008, you'll have to file as non-resident on 1040NR. You can fortunately use 8840 because you've been there less than 183 days which is straightforward to fill in. You file those two forms with the IRS with any relevant attachments, W-2, 1099s, etc.

You'll file an Alberta T1 as per usual except you need to claim Federal and Provincial tax credits on form T2209 and T2036 for the tax withheld in the US (including FICA withholding). There may be additional taxes to pay in Canada on top as the Canadian rate is usually higher than the US rate.

If you're planning on staying in the US for a considerable length of time it's usually a better idea to move your tax home to the US, although in the case of Alberta it depends on where you live in the US, as Alberta taxes are quite low. You may be better off keeping your tax home here, you'd have to work it out.

So what you do if you want to move your tax home to the US is sever residential ties to Canada, put down on your T1 that you left on 31st December, and then next year you simply file a 1040 like the average American.

RRSPs have to be declared on Form 8891, and foreign accounts with more than US$10,000 have to be declared on the FinCEN FBAR form, but you don't need to do that until next year.

One tip is that if you move your tax home to the US, it's important to notify your Canadian bank you are non-resident so they issue an NR4 instead of a T5, otherwise you will be on the hook for Part XIII taxes.

Contrary to what every banker will tell you, you do not need to cash in your RRSP, nor do you have to pay any income tax on distributions inside of it, because it's treated as a US IRA under the 2008 tax treaty - but you must declare it on Form 8891.

http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

[Vince]

Hi Steve,

I didn't want to spam another thread so hopefully you can pick up my message since I haven't found someone with my exact case. I promise to click on some google links too

I've never had to file tax forms while I was born and raised in Canada because I never worked in Canada except for a short time where I made a few thousand tops.

Oct. 2007 I got a TN Visa and started working in the States for a US company. Around April 2008 I visited Canada to have my Canadian/US taxes done by an accountant in Canada and was told I only needed to file/handle my US taxes. My US tax form has my US address and my income is directly deposited to my American bank account. I assume all is well.

I'm concerned that I didn't cut off ties to Canada by notifying the CRA. Note that I never owned property and never owed money. I also renewed by TN Visa on October, 2008. It's been well over a year now and my only tie to Canada is a driver's license and bank account that I haven't done anything with.

However before calling CRA, I'd like to know...
a) if I should trust the accountant I met last year
b) if I definitely need to find an accountant who will file Canadian taxes for me
c) if it would be a good idea to do it even if I don't need to

I've gone to H&R Block for the tax returns on my US taxes and would greatly appreciate any advice for my Canadian situation.

[Steven]

Well for 2007 you should have either filed as a non-resident and filed in Canada, or alternatively filed as dual-status, i.e. a 1040NR for the first part of the year (which presumably would be zero) and a 1040 pro-rated for the last couple of months.

2008 you just file on 1040 like the average American. Phone up the CRA and tell them you left in October 2007 and haven't filed a tax return because you were never required to.

Your situation is a bit unusual because you never filed in Canada, so it probably does make more sense to have filed as dual-status for 2007 as it prevents you from having to file a T1.

If you're on TN-1 presumably you only have a W-2 and maybe a 1099-INT from the bank, 1040 is simple to fill in in that situation, you don't need an accountant.

Your only real problem comes when you want to move back to Canada, or if you ever get denied entry, because at that point you will have to file dual-status again (unless you move on December 31st) and start filing T1s.

[peters]

You can fortunately use 8840 because you've been there less than 183 days which is straightforward to fill in.

What is the purpose of this 8840 form. It sounds to me that is only an information for IRS, it does not relieve you of any tax payment.

[Steven]

It's to establish a closer connection to your home country than the US, which is part of the Internal Revenue Code. Basically it is for informational purposes, there are variations of the form for different purposes, e.g. if you're a patient in hospital you use Form 8843 instead. The information on the form is used to determine your status and how much tax you owe under the relevant provisions of law.

Generally, people have to move their tax home to the US if they meet the "substantial presence" test, however there may be a tax treaty provision that allows you to keep it in your home country, which you can claim by filing Form 8833.

But no, 8840 doesn't make any difference to how much tax you owe. It's just for the edification of the IRS.