tax residency question

This board has been an amazing source of information.

Got a question about residency determination. We moved July 13 2008 to the US. Because we do not meet the substantial presence test, my understanding is that it makes us NR in the US and resident in Canada for 2008. Let's assume that I want to be NR in Canada for 2009, Can I state on my return that my departure date is Dec 31, 2008? That would make me a full-year resident in the US for 2009. Or do I get it all wrong and became a non-resident of Canada as soon as I moved in July?

I understand the downside about moving your residence from reading the other posts. But this makes sense for us.

Thanks!

People get wound up about the substantial presence test but it's not that important really in a US/Canada situation, the key point is where you have residential ties. The IRS and the CRA don't keep track of how many days you've been somewhere, however they can check for residential ties, e.g. whether you've got an NR4 with a Canadian bank, whether you've filed a W-8BEN with a US bank, etc.

Logically if you're going to move your tax home it's simplest from a paperwork standpoint to do it at the start of the calendar year because then you don't have to file dual-status in either country.

So yes, you state on your T1 you left at the end of the year and then next year you file a 1040 in the US.

Bear in mind you must sever all residential ties to Canada, DL, healthcare card, etc. and you must notify the bank of your status (that's the really important one because the CRA will be aware of it). The banks are pretty hopeless at this, they don't change your status just because you give them a US address, you must tell them specifically that you are non-resident for tax purposes.

One thing to bear in mind is that you may be subject to departure tax, which is how Canada stops people from taking advantage of the lower tax rates in the US in the main: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

Just bear in mind if you ever want to move your tax home out of the US there is a substantial amount of paperwork you have to file.

There are also various forms that aren't obvious at first glance that you have to file, such as Form 8891 to declare RRSPs (your bank may have a problem if you become non-resident, you can be the beneficiary if you live in the US under a tax treaty provision and there is no US income tax on distributions inside the RRSP because they are treated as IRAs under the 2008 tax treaty).

Also beware of the FinCEN FBAR form to declare foreign assets, which is similar to the T1135 form in Canada - the difference is that in the US it's not a tax form and if you fail to file it, it's a criminal offence.

Steve,

this is all very helpful. thanks