I received this question the other day:
"WTF is a Dual-Status Return? And how do I file a Dual-Status return?"
WTF indeed.
I know a lot of you who are visiting the site are trying to get info on how to DIY your tax return filings. So rather than give a detailed technical analysis and extra-long historical commentary on this stuff, below is a basic how-to.
Scenario:
At the start of 2023, you're a "Maple Syrup and Ice Hockey" Canadian Citizen/Canadian Tax Resident. You get a wicked job offer from a US company, and magically your TN visa appears. And as of 31 March 2023, you find yourself on a 737, flying south.
What To File (Generalized):
You're going to be doing a Canadian tax return filing, along with a Dual-Status US filing here. The basics would look something like this:
- Canadian tax return: Your final Canadian tax return will report:
- Your worldwide income from 01 Jan 23 - 31 Mar 2023.
- When you exit Canada, ITA 128.1(4)(b) triggers a deemed disposal of assets. So you'll need to report your deemed-disposition "Departure tax," if you have certain taxable assets (Think investments/securities, plus some others Ref. 128.1(4)(b).) You'll want to review forms T1161 and T1243.
- Your departure date of 31 March 2023.
- US tax returns: You’re doing a Dual-Status filing, so you'll need the following:
- Complete a 1040NR covering Jan-Mar/23, listing only any US source income earned during that period. This will be your “Dual-Status Statement.” (Write this in red Sharpie across the top of the return for extra credit.)
- Complete a regular 1040, covering your worldwide income from Apr/23 to Dec/23. This is your “Dual-Status Return.” (Get your red Sharpie out again...) Pro-tip: I like to include an Excel summary with Dual-Status filings, cleanly showing the IRS what income went where.
- These two items get filed together, and the submission has to be paper-filed. (See Publication 519) You'll be mailing these to either Austin TX, or Charlotte NC, depending on whether you have a balance due or not.
- FBAR Reporting: Remember to submit these, as your Canadian accounts (Bank account, investment accounts, RRSP's etc.) are caught by the US FBAR disclosure rules.
- Canadian Investment Income: Any Canadian investment income will get reported on the 1040. Watch, because your Canadian broker may withhold 15% of this investment income. Fortunately you'll be able to claim the 15% withholding as a Foreign Tax Credit (Form 1116) on your US tax return. Also, read up on 8938's, as your investment accounts may need to make an appearance on this Form.
- RRSPs: You can keep your RRSP accounts, but they may be taxed at the state level in certain States. Read more here. Once again, watch the 8938's.
- TFSA, RESP, FHSA accounts: Consider closing these, as they are a pain to report and don’t provide any advantages US-side.
So there's the basics, and hopefully this helps you get pointed in the right direction.
Sources:
Usual Disclaimer: What is written here is not formal tax advice. I'm not a tax lawyer. I’m not your CPA. It’s possible, or dare I say even probable, that the comments and opinions expressed here contain material errors, are out of date, or that important stuff has been left out. Don’t use this info to make tax decisions. Hire a pro to help you.