Capital Losses & Becoming A Non-Resident

by Tax Guy - Burlington Accountant on December 5, 2008 Print This Post Print This Post

Question: “I am considering becoming a permanent resident of the U.S. (I have citizenship in both Canada and U.S.) and presently live full time in Canada.  In October, I suffered a large capital loss on an investment strategy where I had been previously been taxed on capital gains (an option strategy that required huge margin which was lost when the market took a great tumble).  Do I have better write offs as a Canadian or American resident?  I plan on returning to the US for residency in November.”

The issue of becoming a resident of the U.S. to claim a tax advantage is a moot issue.  At the time of the transactions and currently you are a resident of Canada and are subject to tax on your worldwide income.  If you were to become a non-resident of Canada, you would trigger what is termed a “deemed disposition’ whereby you are “deemed” to have sold all of your assets immediately before you left.  Ant accrued gains an losses will be realized for tax purposes and your tax bill must be paid or security posted or the tax paid before you depart.  You would, in all probability, not find any tax relief under the tax treaty or protection in the U.S. from these rules.

From a Canadian perspective capital gains and capital losses are only included on the income tax return when they are realized.  Interest you paid on the use of margin may be deductible if the underlying properties were used to generated dividend income.  The interest deduction may be claimed each tax year.

If you realized the capital gains in any of the three preceding years and have realized (i.e. sold your assets) in the current year you must first use the loss against capital gains in the current year and then can carry the net loss back three years or forward indefinitely.

You should consult with a cross border tax specialist should you wish to become a non-resident.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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GlenStanley-Turner December 7, 2008 at 8:05 pm

You can make an election when you have a change in use of a principle place of residence that allows you to defer the deemed disposition or sale of the property for 4 years after leaving the property. This could be advantagous if property values are rising but a disadvantage if they are falling. Accounting and tax

Tax Admin December 8, 2008 at 11:55 am

I agree.

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