Dual-Status Return After Moving From Canada to the US

Is my first US return after moving from Canada a dual-status return?

Usually yes. If you are not a US citizen, were not a US resident at any time in the prior year, and your US residency starts partway through the year, you are a nonresident before your residency starting date and a resident after it (IRS Publication 519). That split year is a dual-status year.

Two cases are different:

• US citizens are taxed as residents for the whole year, wherever they lived. A dual-status return does not apply.
• People who were US residents for any part of the prior year and are residents this year are treated as residents from the start of this year (Publication 519).

What makes a case not simple: your Canadian and US dates do not match, you are married and weighing the joint choice, you received Canadian pay, bonus or stock awards around the move, or you arrived too late in the year to be a resident at all. Gather your travel dates, Canadian pay stubs split at the move date, and your Canadian departure return before you start. The general mechanics of a first US return are in your first year as a US tax resident.

Which day does my US tax year start after moving from Canada?

Under the substantial presence test, your US start date is generally the first day you were present in the US that year (Publication 519). Earlier trips count, so a house-hunting visit in March can pull your start date back from a June move.

You can leave out up to 10 days of earlier presence when setting your start date if, on those days, your main place of work was still in Canada (your tax home) and your ties to Canada were closer than to the US. You must attach a signed statement, made under penalties of perjury, to claim this. You cannot exclude part of a run of consecutive days; every day in that run must qualify. Those days still count when you check whether you meet the substantial presence test (Publication 519).

Why can my Canadian departure date differ from my US start date?

The two countries use different tests. The CRA says you usually become a non-resident of Canada on the latest of three dates: the day you leave, the day your spouse or common-law partner and dependants leave, or the day you become a resident of your new country (CRA: Leaving Canada). The US date turns on days of physical presence or green card status. A family that stays behind can keep you Canadian after your US start date. See the date you become a non-resident of Canada.

What if the two dates leave a gap or an overlap?

A gap usually means neither country taxes your worldwide income for those days, only income sourced in it; an overlap means both may, and the treaty decides which country treats you as resident.

• Gap. Your Canadian departure date comes before your US start date. The CRA's third date (becoming a resident of your new country) makes a true gap uncommon: a late arriver who is still a US nonresident is usually still a Canadian resident, taxed on world income, until the US date. Whether cutting every Canadian tie earlier ends Canadian residence first is a question of fact; see the date you become a non-resident of Canada. Where a gap does exist, Canada taxes only Canadian-source income (CRA), and the US taxes only US-source and US-business income (Publication 519).
• Overlap. Your US start date is in March but your spouse and children stay in Canada until August. Both countries can call you resident for those months. Article IV(2) of the Canada–US tax convention settles it in order: permanent home, centre of vital interests, habitual abode, citizenship, then agreement between the two tax authorities. If the treaty makes you a US resident for those months, Canada deems you a non-resident from that date, so your Canadian departure date, and the departure-tax valuation date, move back to it (Income Tax Act, s. 250(5)). If it makes you a Canadian resident, you file those US months as a nonresident. See the treaty tie-breaker.

Using the treaty to be treated as a US nonresident is a treaty-based position that is generally disclosed on Form 8833 (IRS).

Which Canadian income stays off my first US return?

Canadian income you received before your US start date generally stays off the US return. For the nonresident part of the year, foreign-source income not connected with a US business is not taxable, even if you later became a resident (Publication 519).

That usually covers:

• Salary for work done in Canada and paid before the US start date
• Canadian interest, dividends and rent received before that date
• Gains on Canadian investments sold before that date

The departure tax deemed gain is a Canadian rule: Canada treats you as selling certain property just before you leave. No sale happens for US purposes, so that deemed gain is not US income. Its effect on your later US cost base is covered in moving from Canada to the US.

Which Canadian income goes on my first US return?

Foreign-source income you receive while a US resident is taxable on the US return, even if you earned it while a nonresident (Publication 519). Whether an item goes on the US return turns on when you receive it, not when you earned it.

Common items received after the US start date:

• Final Canadian pay, a bonus or a vacation payout paid after you started in the US
• The taxable part of RRSP or RRIF withdrawals; see Canadian registered accounts on a US return
• Rent from a Canadian property you kept
• Canadian interest, dividends and capital gains, including income inside a TFSA or RESP; see Canadian registered accounts on a US return

Canada may also tax some of these items, which is where the foreign tax credit comes in. Where you did the work still matters: it decides whether pay is US or foreign source, which sets how much Canadian tax you can credit. Pay and stock awards earned across the move are split by workdays; see stock awards and pay after a move. Canadian accounts also bring US reporting in the first year: see your first FBAR and Form 8938.

What changes on a dual-status return?

A dual-status return loses several things a full-year resident return has (Publication 519):

You cannot claim the education credits, the earned income credit or the credit for the elderly or disabled unless you are married and make the joint full-year choice. Married dual-status filers can claim the child and dependent care credit only with that choice or if they live apart under a special rule (Publication 519).

Can we file jointly in our first US year?

Yes, if you both choose to be treated as US residents for the whole year. Both spouses are then taxed on worldwide income for the whole year, including the Canadian months (Publication 519).

Two versions of the choice exist:

What it adds: both spouses' January-to-move Canadian salary, investment income and gains go on the US return. What it unlocks: joint rates, the standard deduction and the credits a dual-status return limits. The section 6013(h) choice can be made only once: neither spouse can make it in a later year, even after a divorce or remarriage. To make either choice, you check the box in the Filing Status section of a joint Form 1040, enter the dual-status or nonresident spouse's name, and attach a statement signed by both spouses giving each spouse's SSN or ITIN; a spouse who cannot get an SSN applies for an ITIN on Form W-7 (Publication 519). Under section 6013(g), neither spouse can claim treaty nonresidence, and the choice stays in effect for later years until ended or suspended (IRS: Nonresident spouse).

Whether it costs or saves depends on the Canadian tax already paid on the added income, which the US may let you credit. The cost shows only when both versions are worked out. See claiming Canadian tax on your first US return, and for a spouse who stays in Canada, spouse still in Canada after you move. The general rules are in married to a nonresident.

What if I arrived late in the year and did not meet the substantial presence test?

You are a nonresident for the whole arrival year unless you make the first-year choice. It is available if you were not a US resident the year before, meet the substantial presence test next year, were present for at least 31 days in a row this year, and were present for at least 75% of the days from the start of that run to year end, counting up to 5 days of absence as presence (Publication 519). Your start date is then the first day of that run. Because you must first meet next year's test, the choice usually means extending the arrival-year return. Details are in your first year as a US tax resident.

When are the returns due, and in what order?

The Canadian departure return usually comes first, because its Canadian tax and departure date feed the US return. It is due April 30 (June 15 if you or your spouse ran a business) (CRA). The US dual-status return of someone resident at year end is due earlier, April 15, or October 15 with an extension (Publication 519). If the Canadian figures are not ready, extend the US return.

What should I gather?

• Entry stamps, travel log or I-94 history, with every US day this year
• Evidence of your Canadian departure date (lease end, sale or rental of home, spouse and children's move date)
• Your US arrival evidence: visa or green card date, job start date, new lease
• Canadian pay stubs split at the move date, and the T4 and slips for the year
• The Canadian departure return and any notice of assessment
• Canadian account statements on your US start date and at year end
• For a married couple: both spouses' income for the full year, to compare the joint choice
• For the joint choice: your spouse's SSN or ITIN, or a Form W-7 ITIN application

Example

All figures are illustrative. Canadian amounts are in Canadian dollars (C$) and US amounts in US dollars (US$).

Single engineer, Toronto to Austin

An engineer leaves Toronto on 31 May and starts a TN job in Austin on 1 June, with no earlier US trips that year. Her Canadian departure date and US start date line up with no gap.

• C$60,000 salary from January to May: Canadian departure return only.
• US$90,000 Texas salary from June: US resident period.
• C$4,000 vacation payout paid in June: received while a US resident, so it goes on the US return; the Canadian tax withheld on it is a credit question.

She files Form 1040 as a dual-status return. No standard deduction; she itemizes what she can.

Same engineer, married, spouse joins in August

Her spouse arrives on 1 August and has too few days to meet the substantial presence test, so is a nonresident at year end unless the spouse makes the first-year choice after meeting next year's test. Without that choice, the joint route is section 6013(g), which carries into later years; with it, both spouses are dual-status and the joint route is section 6013(h), for that year only. Because her spouse stays in Canada until August, the CRA would usually treat her Canadian departure date as 1 August, not 31 May. June and July are then an overlap where both countries can call her resident, and the treaty tie-breaker decides; if it makes her a US resident, her Canadian departure date moves back to 1 June. They compare:

• Dual-status, married filing separately: only her income from June on, no standard deduction.
• Joint, full-year (section 6013(g) here): adds her C$60,000 January-to-May salary and the spouse's C$50,000 Canadian salary for the whole year. Joint rates and the standard deduction apply, and the Canadian tax on that income may be creditable.

Which costs less depends on the credit; they run both versions before choosing.

Nurse arriving on 1 November

A nurse on a TN visa arrives on 1 November and stays. She has 61 US days, short of the substantial presence test, so she is a nonresident for the arrival year. She was present for at least 31 days in a row and every day from arrival to year end, so if she meets the test next year, she can make the first-year choice and be a resident from 1 November. A green card holder landing the same day would be a resident from that day under the green card test.

Different for you?

• You are married and deciding on the joint choice: the answer turns on both spouses' Canadian income and tax. See cross-border tax help.
• Your spouse and children stayed in Canada: see spouse still in Canada after you move.
• Both countries claim you for overlapping months: see the treaty tie-breaker, and for a gap or overlap in your dates, cross-border tax help.
• You received a bonus, stock awards or options around the move: the workday split sets what each country taxes. See stock awards and pay after a move or cross-border tax help.
• You arrived late in the year and are weighing the first-year choice: it means extending the return and meeting next year's test. See cross-border tax help.
• You still own a Canadian corporation: its salary and dividends after your US start date go on the US return, and the company may need a US information form. See information forms for a foreign company and cross-border tax help.
• You paid departure tax or hold property with a gain: see moving from Canada to the US.
• You want to claim Canadian tax against US tax: see claiming Canadian tax on your first US return.
• You need the Canadian side of the year you leave: see your part-year return.