Moving to the US with the outstanding loans in Canada

Hi,

I am planning to move the US under TN1 with my family (wife and kid). I have following outstanding loans in Canada.
1. RSP loan for both my wife and I - my wife will not be working in the US
2. Line of Credit balances for me.
3. Some minor credit card loans

Do I have to pay all these before I leave. I have a house in Ontario, which is co-owned by my wife and I. But we are planning to have move the title to her name only such that I, personally do not have any residential ties in Canada ( not sure if this is possible, since my wife still will have residential ties to Canada as she would be owning a house in Ontario). The plan is for myself to become a resident alien in US, and not bother about paying taxes in Canada and my wife remaining the Canada resident in the US and paying taxes on the rental income. Is this possible? If so, how do I handle my loans?

Ed

Your spouse is a residential tie to Canada, that's going to be your problem, plus you're in a non-immigrant category which reduces your tax residency claim in the US. The loan repayments depend on the terms of the loan but I can't see why they would be a major issue.

The IRS isn't going to mind you becoming resident for tax purposes and paying US taxes, but the CRA aren't likely to believe you if your wife (and kids) live in Canada in your house that you transferred to her. Plus bear in mind you can't file jointly if you actually did this but I assume you've already worked that out.

I think your best idea is to run this past the CRA non-resident dept. and see what they think, I have a feeling they will ask you to fill in an NR-73 to determine your residence status.

As long as you both move to US, and you establish a full-fledged home in US (not temp housing), and you file a 1040, you will be considered resident of US. CRA will accept your departure return without question.

You really don't need to do anything with the house. Transferring it to your wife will be viewed as suspicious.

But if you are insisting that she reamin in Canada (Why, may I ask? you weren't clear on this) A US resident can (and should) file jointly in US, even if the spouse lives in canada. But this would mean reporting the rental income in US anyways, so why go thru hoops.

Having her stay back in canada, and not work, just to avoid paying a small tax in canada (which you would get credit for in US anyways) is a poor plan.

And forget asking CRA. They always say you are resident. Even if you were to move by yourself to US, so long as you stay there, and they visit you, and you don't visit them, you will be non-resident of canada by treaty from the day you move.

Thanks Steve and Angelson.

I am sorry I was not clear enough on my ealier post. My wife and kid
are NOT staying behind. We are all moving together. What we are
planning is to rent our house in Ontario. This will generate a rental
income or (loss for now - I have had rental loss due to catital
expenses ). Since the house is is co-owned by both of us, do I have to
file T1 here?

I am not clearly about that. Owning a house is a strong residential
tie; however leasing a dwelling at an arms length to a third party is
not considered significant residential tie - so says CRA website for determining the residency - Paragraph 17.

So, we were thinking moving the title to my wife's name and since we
won't be able to work in the US, she can file T1 and claim rental
loss/gain and I am free from it.

Many people might have done it before. Also what happens to my RSP
loan? If I am not filing T1, do I have to pay everything back (meaning
outstanding amount will be considered income for that year?)

Also, I have investments (mutual funds, etfs, stocks ) here through
the banks? Will that considered a residential tie?

Renting out the house is more than sufficient to break Cdn residency, as i said earlier. You won't be living in canagda -so neither of you will be considered resident.

there is nothing more that you need to do, other than take care of how the rent is paid and that tax is remitted to CRA. After the first year away, you can file with CRA to lower the withholding based on the fact that tou are making little or no net profit. Regardless, you will file a 216 return every year in canada == for the rent only == .

The HBP (what you call RRSP loan) will need to be either repaid or added to your income on your final T1 -- a small price to pay for breaking tax residency. Properly timed (after jan 1) there will be little o no tax to pay on this if added back to your income.

Note that even simply changing the property to a rental also ends the HBP and would require repayment.

Face it. You are leaving. Settle up and keep things simple. Your rental gains/losses would still be reportable in US (which is to your advantage) whether or not you go through these hoops to 'hide' the rental property, since you both will still have to file a 1040 reporting all world income.

Thanks angelson.

I was only trying to make it more informed and tax-efficient decision (not trying to hide

So when I have an RSP income (under HBP) for the next year - 2010 - do I have to report the income earned in the US for the year 2010 as well - while filing my T1 in 2011?

Just to be clear, the HBP repayment comes due within 60 days of leaving or it is added to your departure return. So if you decide not to repay it, if you leave this year, it will be on your 2009 return, If you leave next year, it will be on your 2010 return.

In neither case will this be considered income on your 1040.

Moving to US and then pretending to still be a CDn resident, and moving ownership from joint to one spouse, sounds and swims like a duck, to me.

Thanks Steve and Angelson.

I am sorry I was not clear enough on my ealier post. My wife and kid
are NOT staying behind. We are all moving together. What we are
planning is to rent our house in Ontario. This will generate a rental
income or (loss for now - I have had rental loss due to catital
expenses ). Since the house is is co-owned by both of us, do I have to
file T1 here?

You don't need to change the ownership, it's not relevant. Your principal residence will be in the US as will be your family, those are serious residential ties and generally outweigh everything else. You will have to pay income tax on the rental income from your house and then you claim a foreign tax credit in the US on Form 1116 (after you've moved your tax home there). What paperwork you file for the income tax in Canada I'm no longer clear on because they changed the forms, I think it's just an Ontario T1 and you put a US address on it but it might be the non-resident T1 - either way you only put your Canadian-source income on it.

Many people might have done it before. Also what happens to my RSP loan? If I am not filing T1, do I have to pay everything back (meaning outstanding amount will be considered income for that year?)

Also, I have investments (mutual funds, etfs, stocks ) here through
the banks? Will that considered a residential tie?

There are various tax treaty provisions that deal with this, but to cut a long story short, tell everyone that you are non-resident for tax purposes so they send you the right paperwork every year (NR4) and use Form 8891 to declare your RRSP to the IRS.

You will probably be liable to departure tax on investments outside of a tax shelter: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

The rental income, post-departure MUST be treated specially, both in the manner it is collected (with tax withheld monthly) and in the manner it is reported annually (on a 216 return).

Thanks.

On a related note - I have lost about $10K on Nortel (who hasn't!). I was thinking that I would be using that capital loss against any gain that I would have in future. However, given the fact that I am moving to the US - can I claim my capital loss while I was in Canada to offset my capital gain that I might have when I will be investing in the US?

Or do I have to keep my trading account open and invest through a Canadian brokerage to claim my capital loss?