Dual-status alien: first LPR year for Canadians

Tax definition of dual-status

U.S. tax status is determined by:

1. Green Card Test (IRC §7701(b)(1)(A)(i)): LPR = resident for the LPR portion of the year.
2. Substantial Presence Test (SPT) (IRC §7701(b)(3)): 31 days current year + 183 weighted days over 3 years.
3. First-Year Choice (IRC §7701(b)(4)): optional election to become resident earlier.

If you get the green card during the year (e.g., July 15), you are:

• January 1 to July 14: nonresident — report U.S.-source income only (1040-NR).
• July 15 to December 31: resident — report worldwide income (1040).

How to file the dual-status return

1. Choose primary form by status on December 31:
   • If resident on Dec 31: Form 1040 (year-end resident), with attached "Dual-Status Statement" containing 1040-NR for the nonresident portion.
   • If nonresident on Dec 31 (rare for incoming LPR): Form 1040-NR primary with "Dual-Status Statement" containing 1040 for resident portion.
2. Annotate top of return: "Dual-Status Return."
3. Annotate the statement: "Dual-Status Statement."
4. No standard deduction except §6013(g)/(h) exception.
5. Mandatory itemize for deductions (Schedule A), prorated to resident portion.
6. No Married Filing Jointly except §6013(g) election (nonresident spouse elects resident all-year) or §6013(h) (LPR-specific case).
7. Limited credits: no EITC, Child and Dependent Care Credit limited.

Options to avoid dual-status

• §6013(g) election: nonresident spouse (Canadian citizen still in Canada) can elect to be treated as U.S. resident all year via joint return. Allows MFJ and standard deduction. But spouse's worldwide income becomes U.S. taxable — cost-benefit analysis required.
• §6013(h) election: similar variation for the year one spouse becomes LPR.
• First-Year Choice §7701(b)(4): lets you become resident from day 1 of continuous U.S. presence (≥ 31 consecutive days + ≥ 75% of subsequent days through Dec 31). Useful if arriving late in year and wanting resident-portion deductions.

Canadian side: emigrant T1 return

The same event (LPR + move to U.S.) creates a departure from Canadian tax residence (unless primary ties retained).

• Final T1 return with departure date in identification section.
• Deemed disposition (departure tax): most assets are deemed sold at FMV on departure date. Capital gain reported in Canada.
• Exceptions: RRSP, RRIF, Canadian real estate, Canadian business property — no departure tax.
• Possibility to defer departure tax via Form T1244 (deferral election, with security).
• CRA / IRS coordination via Canada-U.S. treaty Article XIII (capital gains).

RRSP, 401(k), TFSA, IRA after LPR

• RRSP: continues to exist; IRS recognizes tax deferral via Canada-U.S. treaty Article XVIII(7). No more Form 8891 (eliminated in 2014).
• RRIF: withdrawals taxable on both sides; foreign tax credit via Form 1116.
• TFSA: NOT recognized by IRS as a tax shelter. Income U.S.-taxable yearly. If TFSA holds foreign assets (e.g., a Canadian ETF), PFIC treatment costly (Form 8621). Many tax pros recommend closing the TFSA before the move.
• 401(k) / IRA: continues to grow tax-deferred U.S. side. Treaty coordination with RRSP possible.
• FBAR (FinCEN 114): any Canadian bank/investment account > USD 10,000 at any time during the year must be reported. Separate online filing, due April 15 (auto-extended to October 15).
• Form 8938 (FATCA): higher thresholds (USD 50K single, USD 100K couple), filed with 1040.

Frequent first-year LPR mistakes

• Filing simple 1040 (resident all year) without dual-status → unfair U.S. tax on pre-LPR Canadian income.
• Ignoring Canadian departure tax → CRA reassesses later with interest.
• Forgetting FBAR → penalty up to USD 10,000 per undisclosed account (non-willful).
• Form 8854 (Initial Expatriation Statement) does not apply to incoming LPR — that's for outbound USCs renouncing.
• TFSA not liquidated before LPR → expensive yearly tax headache.
• Canadian principal residence not sold before LPR → exemption preserved in principle (prorated) but selling often cleaner.

Formulaires officiels (toujours utiliser la dernière édition)

• Form 1040 — U.S. Individual Income Tax Return
• Form 1040-NR — Nonresident Alien Tax Return
• IRS Pub 519 — U.S. Tax Guide for Aliens
• FinCEN 114 — FBAR (foreign accounts)
• Form 8938 — Statement of Specified Foreign Financial Assets
• CRA — Émigrants (départ de résidence)
• Form T1244 — Election to Defer Departure Tax