# How to handle stocks 'left' in US Trading Account?



## timereck (Sep 22, 2011)

Hi.

I'm trying to help out somebody who is in a unusual situation and I thought I'd try here first to help narrow down our options.

A good while ago my friend went to work in the United States and acquired some company stock from her company. She left that company, came back to Canada but didn't do anything with that stock and forgot it in her US e-trade account. After being back in Canada for another good while she recently remembered it and managed to re-verify her credentials to the account. Now, she doesn't know what should be her next step.

At first blush I thought that this would be is the same as if she bought the us stock through one of the Canadian brokerage that offer that service, but I am having trouble finding information that describes her exact situation so I feel like I can't confirm this. Has anybody had experience transferring stocks from US e-trade to a Canadian brokerage?

The thing that trips me up is that eventually she will want sell it and I cant figure out the best strategy for that. So what is the best way to transfer it, minimize taxes and transfer the funds back to Canadian dollars? I have a couple ideas, like
1. Simply sell it through e-trade, pay the us taxes, and then currency convert it to Canadian funds.
2. Transfer the stock to a Canadian brokerage that provides usd stocks and then just follow the advice available on other posts about usd stocks.

But then I can't tell if I'm over simplifying a complex situation or making too much out of a simple situation. Any advice would be appreciated.


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## Eclectic12 (Oct 20, 2010)

I believe it a key factor is whether her tax residency stayed with Canada. 

http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html


If it did, she would have filed a Canadian as well as a US tax return. Then I'd think everything would stay like she had bought in a Canadian account from a Canadian perspective. I believe the US return would have to claim a closer connection to Canada to avoid the US tax return taxing the stock.



If she became a NR from a Canadian tax perspective, then there would have been a "deemed disposition" of any stock she held when she left.

http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/lvng-eng.html#mgrnt


Then when she returned to Canada to become a tax resident again ... then I believe she is "deemed" to have bought the stock at FMV on the day she re-established her Canadian tax residency.

This is so that Canada gets capital gains on leaving and on returning, the cost is set so that only growth while a Canadian tax resident is taxed by Canada.


I have no idea how the US tax system will treat this but would hope for something similar.


Cheers


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## AltaRed (Jun 8, 2009)

I agree with Eclectic12 the first thing to sort out is her tax residency situation. None of that information is provided to us. If she filled out 1040 tax returns in the USA (as compared to a NR1040) for a least one year, she will have been a tax resident of the USA. Where I disagree with Electic12 is the way I read the OP, all of that company stock was accumulated while in the USA. There is no initial deemed sale of stock when she left Canada. So it solely depends on her tax residency while accumuluating the stock.

She would have had responsibilities when exiting the USA for a return back to Canada to handle those shares properly (deemed sale) on her final US tax return if she had indeed been a tax resident of the USA and filing 1040 returns. That needs to be straightened out first before more guidance can be given from any forum. Consider posing the question on the Serbinski tax forum (the very best forum there is for these issues).

Regardless of the above, it is possible to transfer shares from a US brokerage to a Canadian brokerage but it depends on the brokerage and likely incurs substantial fees. Whether this is worth it depends on the size of that account. I believe she should just sell the shares from her US brokerage but before she does that, she needs to sort out her capital gains issue first (if there is one) due to tax residency. She may need to talk to a cross-border tax accountant and may need to file 'amended tax returns' for the USA.


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## gardner (Feb 13, 2014)

I think it would be wise to ensure a W8BEN is filed with the brokerage where the forgotten shares are registered to inform them of the current tax residency.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> ... Where I disagree with Electic12 is the way I read the OP, all of that company stock was accumulated while in the USA.


Where do you see a disagreement?

I did say "any stock she held when she left" ... does this not cover both possibilities?


IMO ... this is important info for the OP because if she says "yes I gave up my Canadian tax residency, yes I had stock investments when I left, no I did nothing about a deemed disposition" - this info should put him in a position to let her know she may have bigger issues than the US stock.

I doubt CRA would have missed it on her return but stranger things have happened.



There is no initial deemed sale of stock when she left Canada. So it solely depends on her tax residency while accumuluating the stock.



AltaRed said:


> She would have had responsibilities when exiting the USA for a return back to Canada to handle those shares properly (deemed sale) on her final US tax return if she had indeed been a tax resident of the USA and filing 1040 returns.


 ... and if I'm reading the CRA emigrating page correctly, there will be a deemed acquisition for those shares to set the cost base for a future sale while a Canadian tax resident. I expect that should one miss this, one would end up paying the US tax $$ and then in the future, one would pay more $$ than necessary to CRA.





AltaRed said:


> ... That needs to be straightened out first before more guidance can be given from any forum.


Bottom line seems to be that OP does not seem to be aware that his friend's choices may mean there's a lot more involved than the mechanics of transferring shares.


Cheers


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## AltaRed (Jun 8, 2009)

Fair enough. I make the assumption she had no capital investments (stocks or otherwise) when she left Canada in the first place. But I agree to the extent she did AND she became a resident of the USA for tax purposes, she would have had to have a deemed capital disposition obligation to Canada based on the date of her departure.

It is also true that IF she had been a resident of the USA for tax purposes when she returned to Canada, she neglected to deal with that deemed disposition when she left the USA. The IRS will want that pound of flesh.

Until we know what her tax status was while a resident of the USA, all of this is speculation and no further informed opinion is possible.


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## Eclectic12 (Oct 20, 2010)

As usual ... with the limited info, all that is clear is that there several possibilities out there. :biggrin:


Cheers


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## timereck (Sep 22, 2011)

Thanks for the feedback AltaRed and Eclectic12.

Here's some more points regarding tax residency:

She worked in the states by way of a NAFTA TN Visa and lived there with no financial assets or property in Canada. This was possible since she left for the job after completing school.
All US tax returns were done through 1040 (not 1040NR) forms. That is, except when she moved back, when she filed a 1040 and 1040NR to cover the transition of moving back to Canada.
While she was in the states, tax returns were not filed in Canada because there was no Canadian income.
There was never a formal declaration of leaving Canada despite having no assets.
All stocks in question were accumulated while working in the United States.

So after reading the links, I think I've narrowed down our problems:

There was never a 'departure return' filed with the CRA which means there's some confusion with the missing Canadian tax years.
There was never a declaring of stocks on any form. So we're missing the 'deemed disposition' of the acquired stocks when she moved backed to Canada.


Does this sound right? Did I forget something? If not then, how do I find an US/Canadian tax accountant who can help me with this?


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## Eclectic12 (Oct 20, 2010)

For #1 - if she had no Canadian income plus no ties to Canada, I suspect it is more of a documentation issue than anything else.

Unless she timed her departure within a small window, I'm thinking there would be one year where there is a Canadian tax return files and a US 1040?


As for #2 ... AltaRed is likely far more familiar with what the IRS would want on the last 1040 for the deemed disposition of stocks held. I can only guess but since my experience is all gov'ts want money - I suspect that just like leaving Canada, the US would want their capital gains tax (or as put in the previous post, "pound of flesh").

On the Canadian side, it is worth documenting the deemed acquisition so that if it comes to CRA's attention, one can easily show they've paid the IRS their portion, which has formed the cost base for Canada's portion.


As for finding the tax specialist - the one time I needed them, the company I worked for had their on retainer. I suspect you can ask here on CMF, the Serbinski tax form can be googled or you can ask your tax expert if they know of anyone.


Cheers


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## AltaRed (Jun 8, 2009)

Good clarifications.....

There should be no issue with #1. A Canadian tax return would (should) have been filed with a departure date in it. As Electic12 suggests, there would (should) have been both a Canadian T1 and a US 1040 tax return filed for the year of entry into the USA....unless possibly it was very early in January with no income earned. When I left for the US in Jan 2003, my Canadian tax filing for 2003 (filed April 2004) included the departure date in it. If no Canadian T1 was filed with a departure date in it, I would not worry about it. The absence of Canadian tax returns and absence of tax slips (T4, T3, T5, etc) issued by Canadian financial institutions/employers for the years outside Canada is evidence of non-residency.

For #2, see http://www.finiki.org/wiki/Cross-border_and_expatriate_issues where in the Taxes section (points 4 and 5), note especially


> A very recent change to the Code imposes a completely different taxation regime, with capital gains taxes due on appreciated assets and hefty withholding taxes on retirement and deferred compensation accounts.[5] If you have significant assets, consult a competent cross-border tax specialist.


 This suggests cap gains taxes shold have been paid on the appreciated value of US stocks at fair market value on the date of re-entry to Canada in that last 1040NR. The OP's friend needs to get hold of the accountant that did her last 1040NR return to see if that return should/can be amended. I would advise the stocks not be sold until that is sorted out.


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