Moving back to Canada after living in US for over 10 years

[movinghome76]

Hello,
We are a family of 4. My DH and I are Canadian Citizen that have PR status here in US. We have had our PR status for just over 4 years. We were on TN's and H1B's etc, previous to that. Our children are USA born citizen.
We are planning on moving back to Canada in the next two years. Moving by Sept 2011 for sure (as sure as anything gets!).
Over the next year I will be apply for my children's Cert of Citizenship from Canada.
I wonder if there is a publication or anything that pertains directly to a situation like ours to give us more info. It seems to be so overwhelming.
IE: What to do about our PR. I hate to give it up. I believe we can keep it for 180 days or apply for a 2 year extension. (In case things do not work out at home).
What to do about Taxes. Who and where do we file our last year(s).
401k, can it roll into RRSP’s or some such?
Any advice or info or links to official sites with info would be greatly appreciated. I imagine there is a lot of stuff we might not even think of. I will be spending the next couple of months researching some of these things, but would love to hear from Canadian’s who have moved back to Canada after an extended period in the USA.
Thank you for your time!

[Steven]

Unfortunately you basically have to give up LPR status if you leave for more than a year, there is no practical way around it. If you pretend you still live in the US still, you subject yourself to dual taxation. As far as the US is concerned, if you're an LPR that's your tax home and you must pay taxes there. A claim of permanent residency is exactly that.

Given that you're nearly eligible for US citizenship, by far the best thing to do if you think you may want to move back to the US at some point is wait a few more months until you are eligible to apply, you can apply 90 days before the five year term so from the sounds of it you only have a few months to wait.

Once you're US citizens you have a right of abode in the US, but if you move your tax home back to Canada you don't have to pay any US tax unless your income is over the foreign exclusion limit ($87,600 each - there is no joint filing claim for it). However you do have to file a 1040 return every year (that can be joint) and you each have to file a 2555-EZ as well (or 2555 if you're over the limit).

Under the 2008 tax treaty, IRAs in the US are treated as RRSPs for Canadian tax purposes, so basically all you need to do is move your tax home back to Canada and declare them to the CRA (how you do that is somewhat vague at this stage, I think they will amend T1135 at some point but at the moment there is a phone number in the general guide for the T1 you have to call).

From a Canadian tax standpoint it's relatively simple, you just start filing a T1 again, the first one will be pro-rated to the number of days you were in Canada that year.

It can get tricky if one or both of you lives in Canada and still works in the US, although significantly less so if you're US citizens because you have to file a 1040 anyway. Basically you just claim a foreign tax credit using forms T2209 and T2036 in that situation.

You must use forms B4 and B4A to declare your personal effects to CBSA when you move back ("personal effect" means you've owned it for at least six months as far as CBSA is concerned). http://www.cbsa-asfc.gc.ca/publications ... u-eng.html

Bringing back vehicles is explained at www.riv.ca - bear in mind there is no tax/duty whatsoever, people seem to think there is but there isn't, it's your personal effect and if it was manufactured in North America it's exempt under NAFTA anyway.

[movinghome76]

I have tossed around the idea of one of us (my DH) of becoming a citizen. But it is unclear as to how strict the US is in making your 'denounce' your citizenship to the other country. I would much rather lose my PR than RISK losing my CDN citizenship. I would like to keep our PR for a while 'just in case', but you never know down the road if/when we will want to live in the USA. Both/either of our kids might end up back down here and I wouldn't mind the option to live/stay near them for as long as I wanted when I wanted. Although according to current immigration laws I guess by then the kids could sponsor us. I thought if one of us became a US citizen (him) then he could always sponsor me if need be, and my vice versa on the CDN side if he needed me too.

You seem to be very knowledgable, do you know how 401k works? My DH can't take it out of his company and if he leaves the company it can only roll into a new 401k. Not sure how leaving the country will impact that. He seems to think he may be able to put it in an IRA. Could we then bring that money to Canada and put it in an RRSP?
We would be over the current $87,600 tax limit. I do not work (although I may in Canada) and he will most certainly be making more than that. How should that affect our decision on citizenship?

Glad to hear there is no tax on vehicles, although I believe you have to have the title which we don't. So we may just try to unload them here before we go.

The situation will be the children and I moving back to Canada next summer (Julyish). My DH will probably be helping us across the border (unsure at this time if we will drive/fly or be uhauling our stuff home then or not). He will not be actually leaving the US until Sept 30ish. He will have to stay at work until that time, but I want to be home before the new school year starts. Will that affect taxes in either way?

To throw another monkey wrench in the plan, he may start working smaller contracts in Canada in the next couple of months to start getting his name out there. If we start making a Canadian salary on top of our US while still down here, any ideas on which countries we file which with? A friend of ours who did this filed separately in each country. I will be looking into this, but I seem to think you file both incomes in both countries...

I know - long, convoluted and confusing! We just recently made the decision to go and there is a lot more info and details than we knew of! Moving down here was easy! We had nothing and nothing to lose!!

[Steven]

I have tossed around the idea of one of us (my DH) of becoming a citizen. But it is unclear as to how strict the US is in making your 'denounce' your citizenship to the other country.

You definitely will not lose Canadian citizenship by becoming a US citizen. This is well established and common.

You seem to be very knowledgable, do you know how 401k works? My DH can't take it out of his company and if he leaves the company it can only roll into a new 401k. Not sure how leaving the country will impact that. He seems to think he may be able to put it in an IRA. Could we then bring that money to Canada and put it in an RRSP?

It's not tremendously clear how it works in practice because the tax treaty only changed last year. Regardless of what the law is, as a practical matter because institutions that offer IRAs and 401k plans do not offer RRSPs and vice versa, when you move your tax home from one country to the other you basically keep the one and start the other, the advantage from the tax treaty principally is that you do not have to cash in an existing IRA/RRSP so it remains a shelter from income tax. I suppose the usual advice if you're in an IRA is to find the RRSP equivalent in Canada as there usually is one, although technically the accounts are separate even if you're investing in the same thing.

We would be over the current $87,600 tax limit. I do not work (although I may in Canada) and he will most certainly be making more than that. How should that affect our decision on citizenship?

You'd need sit down with a 1040 and a Form 2555 and work it out is probably the best way. A lot of people (including accountants) get confused about what the foreign exclusion limit is. It is not eligible for a foreign tax credit, it is a separate US tax on the income you earn as a resident of country A while working in country A, where "A" is not the United States.

So say as a US citizen you reside in Canada full-time and earn the equivalent of US$200,000 a year in your Canadian job, you owe US federal income taxes on a portion of that income, how much I'm not entirely clear on because the foreign exclusion limit is $87,600 and then you will have various other deductions you can claim as detailed in the Form 2555 and 1040 instructions, but you will be paying a reasonable bit of US tax in that situation and you cannot claim a foreign tax credit for it because it is not foreign earnings - it is domestic. The limit applies individually, you each have to file a 2555 even if you file 1040 jointly, if I understand it correctly (check the instructions though).

Bear in mind if you've lived in the US for more than eight years as an LPR and then leave you are subject to expatriation tax anyway and must file a 1040 and 8854 for the next ten years. Expatriation tax is a specific tax on US-source income.

Read IRS publication 519 for more information.

[movinghome76]

You definitely will not lose Canadian citizenship by becoming a US citizen. This is well established and common.

Everything I could find on this says that is it common place to keep both, as Canada allows Dual. BUT - when you make the oath down here, do you not rennounce your citizenship to all other countries?
I would like to know the pros and cons of having one or both of us become citizens. I would like to have both for various reasons, but absolutely do NOT want to chance losing my Canadian. How do you know it is well established and common?

Bear in mind if you've lived in the US for more than eight years as an LPR and then leave you are subject to expatriation tax anyway and must file a 1040 and 8854 for the next ten years. Expatriation tax is a specific tax on US-source income.

WHEW! So much to learn. I will read 519 pub, thank you for that info!
I am getting so overwhelmed! Not sure how people would make the move to quickly! It will take us a year or two just to figure all this out!
Who would be the best person to contact about this info? A tax lawyer? An accountant? In one country? In both?
Thanks!

[Steven]

Who would be the best person to contact about this info? A tax lawyer? An accountant? In one country? In both?
Thanks!

I wouldn't bother, they have no more information than is contained in the IRS publications and your situation here is relatively straightforward.

I made a mistake in my above post, it's 1040NR and 8854 if you give up LPR status when you move back.

From a tax standpoint, that is it in a nutshell - if you file I-407 when you leave and surrender LPR status, then you have to file 1040NR and 8854 for the next ten years and pay expatriation tax if you're liable to any.

If you become US citizens then you have to file a 1040 every year until you both die and also 2555s if you live outside of the US (permanently, we're talking about moving your tax home, not visits) or alternatively 2555-EZ if your income(s) are below the foreign exclusion limit.

I'd say by far the best (and cheapest) thing to do is to have a read through publication 519 and also get hold of Form 2555 and the instructions for it and just sit there and try working out a couple of examples on it to see how much (if any) US income tax you are likely to owe when you move back to Canada. Bear in mind when you read pub. 519 that you are not non-resident aliens and you can't be unless you give up LPR status.

Obviously if it looks like it will be a lot, then that has a bearing on whether you would want to become US citizens or not. And give up LPR status.

All an accountant is going to do most likely is to tell you to keep your tax home in the US if at all possible so you can avoid the foreign exclusion limit. Which is obvious. And this is what people generally speaking try to do. However Canada is probably the toughest country in the world on deeming people resident for tax purposes (precisely because they don't want all their tax revenue going south) so I wouldn't waste your time with exotic attempts to avoid this problem, one way or another they'll get you. As soon as you arrive in Canada with the intent to stay, you're resident for tax purposes, basically.

-- Thu Jul 02, 2009 10:36 am --

Everything I could find on this says that is it common place to keep both, as Canada allows Dual. BUT - when you make the oath down here, do you not rennounce your citizenship to all other countries?

Hmm, chopped half my post off for no reason. Anyway, the State Dept. hasn't enforced the oath since about 1978 and even if they did, they can't force the Canadian Govt. to take away your Canadian citizenship, they can only take away your US citizenship.

[Reba]

There is a current thread in the Canadians in US forum about pros/cons of dual citizenship you might want to have a look at.

Yes, in the oath you have to say the words that you renounce any other connections and nations, however, it currently is not enforced, and Canada doesn't care anyhow. the only way you can officially renounce Canadian citizenship is to make an application thru Ottawa. So unless you apply to renounce, once a Canuck, always a Canuck.

I myself can't even choke on the oath, so I will never likely apply for US citizenship. If my husband and I ever leave the US (he's American) I ain't comin' back We have other options if for some reason he doesn't like Canada.