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Suppose an individual who is a resident of the United States has resided and worked within the country from January 1st until May 15th. On the morning of May 15th, they travel to Canada and, in the afternoon, promptly begin a new chapter of their life.

In Canada, for the sake of argument, they immediately secure employment with a new Canadian company and cease to have any income or expenses associated with the United States. Furthermore, let's assume that this individual is not a U.S. citizen. As a result, they are not subject to ongoing U.S. taxation regardless of their geographical tax residency status.

How would the taxation periods be delineated then? Specifically of interest is the overlapping day of May 15th.

Option 1:
Jan 1 - May 15 (US tax resident) + double taxed on May 15th
May 15 - Dec 31 (Canadian tax resident) + double taxed on May 15th

Option 2:
Jan 1 - May 15 (US tax resident)
May 16 - Dec 31 (Canadian tax resident)

Option 3:
Jan 1 - May 14 (US tax resident)
May 15 - Dec 31 (Canadian tax resident)

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  • 1
    "As a result, they are not subject to ongoing U.S. taxation regardless of their geographical tax residency status." It's not that simple. If they a US permanent resident (green card holder), they would continue to be subject to US taxes on their worldwide income forever unless and until they file I-407. If they were not a permanent resident, then they would only be a resident for any part of the year if they pass the Substantial Presence Test for the year. They were in the US for less than 183 days in the year, but they might still pass the SPT due to days of presence in the last 2 years.
    – user102008
    Jun 9, 2023 at 17:03
  • If they pass the SPT but were in the US for less than 183 days in the year, then it's possible for them to choose to be nonresident for the whole year by claiming closer connection to a foreign country, although they might not qualify because they didn't maintain a tax home in a foreign country for the first part of the year.
    – user102008
    Jun 9, 2023 at 17:04
  • Alternatively, since it's their last year of residency, they can claim an earlier residency termination date of May 15, since they have a tax home in another country for the rest of the year. But they need to include a statement to claim this; if they don't, their residency termination date will default to Dec 31, so they will be residents for the entire year.
    – user102008
    Jun 9, 2023 at 17:04
  • @user102008 you're losing the sight of the forest with all these woods. The OP isn't asking about termination of residency rules, the OP is asking whether both countries can claim the taxpayer a resident at the same time on the day the residency terminates. The answer is yes, they can.
    – littleadv
    Jun 9, 2023 at 17:51
  • @user102008 Do you have any recommended reading material for how to file for first year/last year of US residency? Your comments were very insightful, but to be frank, I am still left with many questions.
    – AlanSTACK
    Jun 10, 2023 at 3:31

1 Answer 1

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Option 1: You'll be tax resident in both on that day. You'll use the foreign tax credit / foreign earned income exclusion / tax treaty provisions to avoid/mitigate the double taxation.

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