1.06 Consequences of Moving
(a) Leaving the United States
Non U.S. citizens leaving the U.S. during a year and wishing to report their anticipated annual income during the year may file form 1040-C - U.S. Departing
Alien Income Tax Return. The 1040-C is not a final return, and a 1040 or 1040NR must still be filed within the required time limits.
(b) Leaving Canada - Canadian Taxation of Non Residents
Persons who are not residents of Canada are taxable in Canada on income from Canadian sources. Although this is a very large topic in taxation, this
article will limit discussion to the taxation of Canadian expatriates who derive income from Canada.
(i) Consequences of Leaving Canada
(See also section b for a discussion of deemed residents and deemed non residents of Canada)
Where an individual ceases to be a resident of Canada there is deemed to be a disposition of all of the property of the individual
at fair market value, and an immediate deemed re-acquisition of the property. The effect of this is to ensure that a person departing Canada will be subject to capital gains tax on accrued increases in property
value while a resident of Canada. "Taxable Canadian Property", including real estate, stocks & bonds, and some other assets are exempt from this treatment, but the taxpayer may elect pursuant to Para.
128.1(4) of the Income Tax Act (Canada) to dispose of any or all of these items in any event.
Individuals permanently moving to establish residence in the U.S. should note that dispositions of capital property should
be made prior to establishing U.S. residence, since unlike Canadian rules, the U.S. will impose a tax on any capital gain from a disposition of capital property by a resident, even if the property was acquired many
years prior to taking up U.S. residence. No provision is made for revaluing the capital property at the time of entry to the U.S., unlike the Canadian capital gains rules, which intend to tax capital gains only
while a resident of Canada.
(ii) Rental Real Estate in Canada
Where a non resident receives rental income from sources in Canada, the non resident may elect pursuant to Para. 216 of the Act to file a return of his
income respecting the rental property under Part I, rather than being taxed under Part XIII (withholding taxes - non residents). Even though no personal exemptions may be claimed on such a tax return, an RRSP
deduction may be made to the extent a contribution is made within available room. The effect of Para 216 on net income is usually beneficial.
(iii) Registered Retirement Savings Plans
No rollovers of Canadian RRSP's are feasible to U.S. IRA's or similar plans (or visa versa), since such a transfer would be considered a distribution under
Canadian law, and would trigger taxation in both countries under the Convention. Accordingly, persons moving to the U.S. after a work period in Canada should consider leaving the RRSP intact, and drawing funds
from the plan only upon retirement or as provided for under Canadian law.
Upon withdrawal, RRSP funds will be subject to a 25% non resident withholding tax (to non residents) and a non resident may
elect to file a return under Para 217 of the Income Tax Act respecting RRSP income in any year. Para 217 permits the filing of a return to include only the RRSP income of the non resident, but uses the non
resident's world income for calculation purposes. This elective return is normally beneficial to persons not earning any income while a non resident (ie TD visa holders).
For U.S. tax purposes, RRSP withdrawals are taxable as pension income, subject to a foreign tax credit for Canadian non
resident tax withheld, pursuant to Article XVIII of the Canada - U.S. Income Tax Convention, 1980, and as defined in Article 9 of the 1995 Protocol.. This normally results in nominal taxation in addition to the
non resident tax paid in Canada.
U.S. residents who hold Canadian RRSP accounts are taxable in the U.S. on a current basis for any income earned within the RRSP
plan, since an RRSP is treated in the U.S. as a foreign grantor trust. An election as described in IRS Rev. Proc. 89-45 must be made in each year, together with the U.S. tax return filed, to prevent current
taxation of undistributed RRSP income from RRSP principal which was contributed while the taxpayer was a resident of Canada.
Part XIII of the Income Tax (Canada) imposes a withholding tax on various forms of income from Canadian sources earned by non residents.  
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