Filing taxes in Canada after moving mid-year from the US on H1-B status

Wondering if anyone here has experience with filing taxes in Canada after moving mid-year on H1-B status. Yes, I could pay a tax consultant potentially, but finding one who knows the details and doesn’t charge an arm and a leg seems tricky.

Would love to know what your considerations when filing taxes were - It looks like the easiest would be to file Canadian taxes first, and then subsequently use the foreign tax credit as a tax credit on the US return, since that is easier than the foreign earned income exclusion which requires filing an extension since you need to meet the 330 days of foreign (non US) presence in a 12 month period. In addition, it also looks like the CRA would also like a form to mention anything prior Roth IRA balances, to ensure that it stays tax exempt in Canada as well. ( Don’t see any such equivalent for a 401k, but this seems to make sense since your withdrawals on the 401k will get taxed anyway ). The one other thing that’s slightly unclear is how taxation works on stock that has been acquired in the US on H1-B, but hasn’t yet been sold.

Anything fundamental that I’m missing here?

1 Like

I have same question. Can someone please repply?

Yeah - have some experience now :slight_smile:

If you move mid-year, your best bet for US taxes is probably to qualify for the foreign earned income exclusion, either using the physical presence test ( 330+ days outside the US in the 365 days from the date you move ), or using the “bona-fide” test, which you can only qualify for by being a bona-fide tax resident of a different country for one full tax year after the year you move out of the US. If you moved out in June 2018, you’d qualify for this on Jan 1st, 2020. The other alternate is to file a dual status return, in which case the main tradeoff is that you won’t get the standard deduction.

You can use IRS Form 2350 for an extension of time to file a tax return if you intend to use either the physical presence tests/the bona fide residence test. You may also want to look into the details of form 2555, since that’s the form where you actually claim the foreign income exclusion.

1 Like

Thanks, Karthik.

Why not opt for foreign tax credit using IRS Form 1116?

You could potentially use the 1116, but there are situations where using the 2555 works out better than the 1116 and vice versa. You may want to compute using both methods - one interesting caveat about the way the 2555 works - If you exclude foreign income, your brackets for US income get computed as though you still had the foreign income as part of your income as well, so that might negate any benefit and the 1116 might be a better route in that case.

1 Like

I’m a Canadian CPA with considerable international tax experience, (Although I don’t specialize in personal income tax), but I wouldn’t dream of doing my own personal return under these circumstances. There are far too many permutations and pitfalls involved … and there are differences depending on which province you reside in. Bite the bullet and give your personal return to a qualified international personal income tax professional. The potential cost of doing it wrong is significant. It can be difficult to evaluate just who is qualified to handle this matter because most tax services will claim to know all about the convoluted regulations governing cross border transactions … but they don’t. Go to one of the big four firms (Deloitte, KPMG, Ernst & Young, PWC), or at least to the next tier, BDO for example. It may cost you more, but you may save money in the end, and you’ll dodge the bullet of unintended consequences. It’s unwise attempt this yourself.

1 Like

How about smythe cpa in Vancouver? Have you heard of them?

Yes, they’re a significant, experienced and well qualified CPA firm with an international bench. Should be fine for your purpose.

How can we claim to be a resident alien in the year you move out? Only dual status return applies right as per IRS?

From the IRS website

Under the general rule, the residency ending date is December 31 of the calendar year in which you left the United States.

However, your residency ending date is the last day during the calendar year that you are physically present in the United States if, for the remainder of the calendar year:

  • your tax home is in a foreign country (cf. Rev. Rul. 93-86); and
  • you maintain a closer connection to that foreign country than to the United States (cf. Treas. Reg. § 301.7701(b)-2(d)).

Also, @karthik.kannappan.k did you use a CPA or did you do it yourself for that tax year ?