This blog is recommended for individuals recently moved or planning to move from US to Canada. It covers broad informational & actionable items from US and Canadian Tax Perspective.
US Tax Related Points
1. Change Your Address in IRS Records?
Even if you moved out of US, you should still update your latest address with US Tax Authorities i.e. with IRS as well as State(s) where you filed last three years of tax returns. Reason is, in case IRS or State has any questions concerning your tax returns, they can send communication to your new address and you can timely respond to them. Usually, IRS and State may contact you for a period upto three years from date of filing and in some cases this could extend upto six years. Not responding to tax related notices / communication could result in penalty, interest and other issues.
There are two ways in which this can be done:
File Form 8822 with the IRS. A similar form should be available to be filed with the State.
If you have not already filed your last year’s US return, use new (Canadian) address on that return. With this, IRS will update your new address in their system for all future communications.
2. Change Your Address With Financials Institutions.
You should update you address with banks as well as financial institutions where you manage your investments. Some states in US (eg. California) do expect a tax return from you simply because you have that state address with financial institutions even if you moved out from US.
3. Transfer of Funds From Retirement Accounts
If you have funds in your 401(k), IRA or other US retirement accounts, you may consider transferring those to your Canadian RRSPs or other Canadian retirement accounts. As per US-Canada Tax Treaty, this transfer is usually considered a qualified transfer to another eligible retirement account. You do not have to report any amount as taxable income to IRS for this transfer, also this doesn’t attract early withdrawal penalty.
4. Managing Your Health Savings Accounts
If you have unused funds in your HSA, you may use funds to meet qualified medical expenses in Canada. Most banks do provide option to spend the money in account in foreign currency i.e. Canadian Dollar for a minimum fee.
5. Filing Your Final US Tax Return
If you received any income from US sources in the year of move, you may need to file tax return with IRS as well as State. There are couple of filing options available here.
You may file as full year resident if you met substantial presence test in that year.
You may file as non resident if you did not meet substantial presence test in the year of move.
There is also an option of filing dual status return. This option is little complicated and approaching a CPA well versed with cross-border tax issues is advisable.
Canada Tax Related Points
1. Apply For SIN
Individual tax identification number in Canada is called Social Insurance Number (SIN). You can apply for SIN at the time of completion of your immigration formalities at landing or apply later at Service Canada Office or apply online at www.canada.ca. Like Social Security Number in US, you will need SIN in Canada to open a bank account, to apply for federal and provincial benefits, to file your tax returns and so on. If you moved to Canada on a work permit, it is advisable to apply for SIN for your spouse even if he/she doesn’t work in Canada as well as for kids.
2. Tax Administration Authority in Canada
As IRS administers income taxes in US, Canada Revenue Agency (CRA) does so in Canada. Provincial taxes are calculated as part of your federal taxes and are added to federal taxes. Thus unlike in US, you do not file return separately with the provincial tax authorities in Canada. This is done as part of and along with your federal tax filing.
3. Filing Your First Tax Return in Canada - Whether Global Income Needs To Be Reported
Very common question from first time filers is – whether I need to report my foreign (US) income on Canadian Tax Return? The answer is no and yes. Though you do not directly pay taxes on your foreign income in Canada when filing your first tax return, your tax credits are prorated considering your foreign income. Thus your foreign income indirectly impacts your tax refund or balance due on your first Canadian Tax Return. Please note that if you are a resident in Canada, while preparing your second and subsequent year tax returns, you do have to report your global income on Canadian tax return. In case you paid any taxes on foreign income to a foreign country, you do get tax deduction in Canada to offset double taxation.
4. Reporting Foreign Property
If you own one or more foreign property with aggregate cost of C$100,000 or more, you need to report the same to CRA through Form T1135. Definition of foreign property is wide enough to include foreign bank accounts, shares, bonds and other securities, foreign insurance policy and real estate investments among other properties. Please note that this reporting is exempted for the first year you immigrated to Canada.
5. My Account with CRA
My Account is a secure online service offered by CRA that allows you to conveniently access your income tax and benefit information on CRA website as well as manage your tax affairs in one place. It also allows you to see your tax assessment notices and other tax related documents online as they become available instead of having to wait for them to arrive by mail. You will be able to set up your My Account once your first tax return has been filed and the same has been processed by CRA.
The information on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from a qualified professional. Devendra Sharma and ClickMyTax will not be held liable for any issues that arise from the usage of the information provided above.