Moved back in October 2008 - Tax questions

[eaglewoman]

My husband and I (plus our 2 kids all CDN citizens) worked in Texas for about 9 years on TN status. In Oct 2008, I accepted a position back in Ontario and turned in my resignation. (my husband was on contract and was about to be let go too.) So we became residents of Ontario in October 2008. I started my new job the first week of Nov 2008. I received no income from Canada prior to the move, nor income from the US after the move.

I am greatly confused on how to report my income on my US taxes. In Canada I understand I only need to report foreign income I recieved after establishing residency in Canada. But from what I've read it seems I should report my Canadian income on my US return, because I wasn't out of the country long enough. If that's the case, how should I report it?

[Steven]

Read the "last year of residency" section under "dual-status aliens" in IRS publication 519.

However I'm afraid moving your tax home out of the US (I assume you were filing as a resident on 1040) is quite complex and the longer you've been there the more complicated it is. Have a thorough read of publication 519 but bear in mind a lot of what they say in there is not relevant when it comes to Canadian residents because of the tax treaty (unfortunately there is no accurate guide on the treaty because it was amended in 2008 and publication 597 hasn't been updated yet).

I can give you a rough idea: you need to file a 1040 which covers the point up until you left and a 1040NR for the period of the year after you left ("dual-status") there is an example in publication 519.

A variety of other things you may need to file: 1040-C, which basically forces you to pay up any tax you owe (although if the withholding was done correctly, it shouldn't be a problem), Form 8854 if you lived there for more than eight years, have a read up of expatriation tax. From the sounds of it you aren't going to have to pay anything but there is a whacky reporting requirement you should be familiar with.

Under the tax treaty, your IRA (if you have one) is still a tax shelter in Canada, but no IRS publication tells you this and the CRA information is really vague. You report it on T1135 with your T1 but you also have to tell them it's an IRA and there is a very vague passage in the instructions which says to contact the CRA to tell them (because there is no form as yet for it).

If you still have a US bank account, you need to inform them that you are non-resident now by filing a completed W-8BEN with them. This income is reported on schedule 4 of your tax return, converted into Canadian dollars. Your T1 has to be pro-rated for 2008 which reduces your deductions and so on by the corresponding amount.