Confused about TN Visa vs. non resident for tax purposes

You can file either as a non-resident by filing 1040NR with 8840 (covering the last portion of the year) or alternatively you can file dual-status which means you file 1040NR for the part of the year you were in Canada and a 1040 for the remainder of the year, with all the deductions, personal exemptions and so on pro-rated to those months.

Thanks Steve.

I read the booklet.

I was wondering what would be the advantage of making an election for a dual-status return (as resident for the end of the year filing 1040) as oppose to filing non-resident 1040NR. It seems to me from the booklet that on both returns you cannot make standard deductions or file as married.

The advantage is that you pay less tax, because once your tax home is in the US you no longer have to pay Canadian income taxes. The US rate is usually lower than the Canadian rate (but not always). However you may not want to file dual-status for a couple of reasons, the first is that if you're only in the US short-term, it's a hassle to then move your tax home back to Canada. The second is that you are unable to cut residential ties to Canada for whatever reason.

Your deductions and so on will be pro-rated to the number of days you were in the US.

You can file as married if your spouse is in the US with you and wants to move tax home, essentially you file a dual-status joint return. Tax treaty provisions allow you to do that, which are reflected in question 3 on 1040NR.

Hi steve, thanks for the answer.

I had income in canada from 1/2008-8/2008 and then moved to us for the last 4 months and had not have any income from canada. Main portion of my income was from the us.

If I move my tax home to US for 9/2008-12/2008 period and file 1040 as married. Do I still need to file 1040NR for 1/2008-8/2008 period if I did not have any income in the us or connected to us in this period? If yes what income do I report on this form?

Also on the canadian side, do I report only income from 1/2008 to 8/2008 on T1 form with no mention of w2 income in the us? Is there in canada equivalent of dual-status ta report?


You mention that it is a problem (or dificult) to move the tax home back to Canada. Why?

If I move my tax home to US for 9/2008-12/2008 period and file 1040 as married. Do I still need to file 1040NR for 1/2008-8/2008 period if I did not have any income in the us or connected to us in this period? If yes what income do I report on this form?

You report zero. Different IRS agents say different things when it comes to this situation. You don't have to file it if your income is less than $3,400, but does that mean during that period, for the whole year, or do you pro-rate it (i.e. $3,400 divided by the number of days)? Given that it only takes five minutes to put your name and address on it and put zero on it, it's not worth worrying about. Read the 1040NR instructions (and confuse yourself further).

The other thing is if you decide to file non-resident for the whole year and claim a tax treaty provision, you don't have to fill in 8833 if your income is less than $100,000. But it doesn't hurt if you do file it, which is why I always tell people to phone the IRS and get it from the horse's mouth because if they decide you do need to file it, it's not the easiest form to fill in. This "$100,000" limit is a bit funky because it really means primarily from direct employment, but that's vague. If it's all from other sources it's a $500,000 limit but what is the break point between the two? Like I said, phone the IRS, because it's somewhat subjective.

Also on the canadian side, do I report only income from 1/2008 to 8/2008 on T1 form with no mention of w2 income in the us? Is there in canada equivalent of dual-status ta report?

Yes there is, if you have Canadian-source income after you left that is subject to reporting, you have to file a non-resident T1 pro-rated for that portion of the year.

You mention that it is a problem (or dificult) to move the tax home back to Canada. Why?

Because it's not clear what forms you have to fill in, there are many different ones depending on your circumstances. Once again you have to file dual-status but beyond that circumstances vary so the filing requirements vary. Most people need to file a W-8BEN with their bank. A lot of people need to file 1040-C. Some people need to file 8854 or maybe 8840 or 8833. Once your tax home moves to the US, if you have over $10,000 in a foreign bank account you have to file the FinCEN FBAR form - well you stop doing that but then FinCEN can get suspicious because they're not part of the IRS.

What happens to your RRSP? Well it's somewhat clear what happens if you move your tax home to the US and keep it, but even the CRA doesn't seem to know what happens if you move your tax home to the US and then move it back, what is your contribution amount, because you can't contribute while you're in the US, so can you carry over unused amounts from x point in time? This is an entirely new thing for the CRA because only the new US-Canada tax treaty has a provision protecting RRSPs.

If you're subject to departure tax, well it's obvious what your bill is if you permanently leave Canada, but the bill can be pro-rated if you then come back and then you have to get your money back from the CRA. And what is the capital gains tax liability, say on real property that you leave behind in the US? Because you haven't disposed of it, you still have it. Technically when you do dispose of it, you owe the US money up to the point that you left the US (assuming it wasn't your principal residence) and then the rest of it goes to the CRA based on the capital gain after moving back. Try calculating that. Try remembering to report it even, several years down the road.

And so on.

I dare say for Joe Average it's not too much of a major problem, but lots of people have RRSPs so it's not just a problem for Mr Moneybags with his mansion in Palm Beach.

Oh and if you're lucky enough to become a US citizen and then move back to Canada, you have to file a 1040 every year until you die and there is a foreign income exclusion cap of $87,600 - earn over that and it's subject to US income taxes even though you don't live there anymore.

Once you become entangled with the IRS it's quite difficult to disentangle yourself.

I am in a similar quandry, and would love any advice any of you could offer... I'm a recently graduated Canadian veterinarian who has been working in NYC on a TN visa since June 2008, initially doing a 1 year internship from June 08-June 09, and currently doing a 3 year residency from July 09-July 2012. Last year I filed as NR Alien for my 6 months of US income (automatically, as I had been in the US for less than 183 days), and got back $1683 as my return on about $16,000 earned. I'm about to submit my 2009 taxes for approx. $30,000 in wages from Jan 1 09- Dec 31 09, and am trying to decide whether to do it as a resident or NR. I feel like it would be better for me in the short term to file as a NR as I will get a lot more money back, which I could most definitely use on the tight salary I'm currently making. If I file as a resident alien, I'm only eligible for about $683 back according to Turbotax's online submission system. However, I also don't want to shoot myself (or more realistically, my parents!) in the foot by getting slammed on my Canadian tax return if I file as a nonresident and have to pay the difference back to the Canadian government on my yearly return there... I don't have anything additional in the way of deductions or taxable items on either side of the border this year (single, no dependents, no tuition credits, no student loans or lines of credit to pay off, no car, no RRSPs, no property/investments owned - not much to my name, but happily not in debt!). Would it make the most financial sense for me to file as a NR alien (I have the documentation to back it up as required to maintain my TN visa status - Canadian home, family ties, bank account, driver's license, etc), or as a resident alien but get less back? At this point in time I am likely planning to return to Canada once I am finished my residency in 2012 (this could end up changing, but at this point I have no intention of ever applying for permanent residency/green card status), and would like to keep Canada as my permanent tax home long term as I will likely settle back there eventually.

Any advice on this would be immensely appreciated! I am using all of my brain cells to study for my residency currently, so don't have much space or time left to devote to deciphering the taxation system down here

I am considering a TN visa. I am a bit worried does anyone know a good lawyer. I was going to try this guy Paul Ramacieri at Simpson Wigle Law then found out from a friend that he has a complaint against him at the law society and threatens clients with police And sues clients...any ideas for a good immigration lawyer