U.S. Tax Relief for Canadians Emigrating to the United States
Canadians moving from Canada to permanently settle in the United States should take note of recent Internal Revenue Service (“IRS”) guidance providing relief from U.S. federal income taxation.
Individuals emigrating from Canada to the United States are subject to Canada’s departure tax as if the Canadian resident had disposed of all their capital property for fair market value immediately prior to their departure from Canada (the “Departure Tax”). Thereafter, when the individuals subsequently sell such property, the United States will impose a federal income tax upon the gain from the actual sales price over the original basis. Recently, the IRS published Revenue Procedure 2010-19 (“Rev. Proc. 2010-19”) providing guidance on making a gain recognition election for U.S. federal tax purposes under Article XIII(7) of the United States-Canada Income Tax Treaty (the “Treaty”), as amended by the Fifth Protocol to the Treaty. The election provides emigrants from Canada with relief from U.S. federal income tax through a deemed sale election that results in an increase in the tax basis of the property to its fair market value.
For more information, please contact the Canada Practice Group or the Tax Practice Group at Lane Powell: