Never Filed Final Canadian Tax Return

southernmost
New Member



Joined: 15 Aug 2008
Posts: 3
Location: Boston

Posted: Fri Aug 15, 2008 10:13 am

 

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Through a combination of ignorance, apathy and overwhelming personal circumstances, I never filed a final Canadian tax return in 2001 when I left the country. I was in graduate school at the time, and did file a tax return for that year, but not a 'final' return. I subsequently worked in the U.S., married a U.S. citizen, etc and effectively severed all ties to Canada (no health insurance, etc.) and I did not have any real assets in Canada, with the exception of some RRSPs.

That said, I was investigating bringing the RRSPs to the U.S., and was told by a friend that I may have to pay taxes to Canada for the full time period from 2001 until present (and penalties). That seems pretty excessive to me, but I was hoping to get some perspective from folks on this forum, if they have ever done anything similar. Specifically --
1. What happens if you 'forgot' to change your status to non-resident?
2. Has anyone had any experience with something similar?
3. Am I doomed?

Thank you in advance for any help.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1592
Location: Calgary

Posted: Fri Aug 15, 2008 10:34 am

 

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Doesn't really matter as long the CRA will believe your explanation that you left Canada on December 31st 2001 and you've had no Canadian-source income (other than bank interest, which doesn't require a return) since then. If you tell them you moved during 2001 they will reduce your personal exemptions for that year which means you will be subject to penalties on that amount, but it will probably be a tiny amount of tax you owe them as a result of the personal exemption being pro-rated.

The other problem you may have is if you've still got a Canadian bank account and never told the bank you're non-resident, so they were withholding Part XIII non-resident tax. If you've still been getting T5s you should have filed a T1 to pay the tax, but once again it's probably a trivial amount of back tax unless you had some humongous amount of money in your bank account.

Might get a bit dicey with the RRSPs though if you've never filed Form 8891 with the IRS since you moved your tax home.

Certain interest payments or distributions on RRSPs (even if they remain in the RRSP) prior to Jan. 1st 2008 are subject to US income tax (even if you file Form 8891). The new tax treaty however treats RRSPs essentially the same as an IRA.

But once again, unless you've got some huge amount of money stashed away in RRSPs and the interest payments/distributions 2002-07 are enormous, I wouldn't worry about it too much, call the IRS and explain the situation. (And good luck with that, it's so obscure you'll wait all day to get an agent who can help you with it).

The IRS may also require you to file a dual-status return for 2001 when you moved, unless you moved on 31st December in which case it doesn't matter providing you filed a 1040 for 2002.

There's a remote possibility the CRA might decide you had residential ties in 2002 and tax you that year, but unless you're famous and/or very wealthy, I doubt it this late in the day. You only need to get worried if they ask you to file NR-73 for 2002, in which case you ought to get hold of a decent cross-border accountant and get some detailed help.
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Steve.

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southernmost
New Member



Joined: 15 Aug 2008
Posts: 3
Location: Boston

Posted: Sat Aug 16, 2008 2:52 am

 

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Steve -- thanks for the reply. Very helpful! Thanks.

One minor follow up -- when reaching out to the CRA is it best to do it by phone or to write a letter? Any thoughts? Does it make a difference?

Thanks again!

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1592
Location: Calgary

Posted: Wed Aug 20, 2008 9:23 am

 

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Write a letter, they love letters. Bear in mind when talking about "moving", we're talking about moving your tax home, not the date you physically left, that doesn't mean much. The date you finally severed all residential ties is the date they will use (and it will help you if you can say it's December 31st).
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Steve.

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southernmost
New Member



Joined: 15 Aug 2008
Posts: 3
Location: Boston

Posted: Wed Aug 20, 2008 11:42 am

 

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Excellent! Thanks for the help!

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