Article XIII(7) Election: Stepping Up Basis After a Move
How a new U.S. resident aligns U.S. basis with the Canadian departure value, and how it's made
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The Article XIII(7) election lets someone who paid Canada's departure tax elect, on their U.S. return, to be treated as having sold and repurchased the same property at the same value for U.S. purposes. It steps the U.S. basis up to the Canadian departure value, so the United States doesn't tax the same gain again.
On this page
The problem it solves
| Without the election | With the election |
|---|---|
| Canada taxes the gain up to the departure date | Canada taxes the gain up to the departure date |
| U.S. basis stays at original cost | U.S. basis becomes the departure-date value |
| On a later sale, the U.S. taxes the whole gain since purchase | On a later sale, the U.S. taxes only the gain after the move |
How it's made
On the U.S. return for the year of departure (often a dual-status return — the dual-status guide), filed on time (including extensions), with Form 8833 stating that the election is made under Article XIII(7) and documentation of the departure-date value and the gain reported in Canada (Rev. Proc. 2010-19); the election reports the deemed sale and repurchase — which creates U.S. gain in that year if a sale would have been U.S.-taxable — for example, for a U.S. citizen — with Canadian tax credited under Article XXIV; for a Canadian who was never a U.S. person, the deemed sale isn't U.S.-taxable but the basis still steps up. The election must cover every property deemed disposed of, is available only if they produce a net gain, and can't be revoked without IRS consent. The departure-date value must match the Canadian return (Form T1243).
Who uses it
Canadians moving to the United States with appreciated non-registered investments or private company shares (the moving a business guide); U.S. citizens leaving Canada who paid departure tax.
Frequently asked questions
What is the Article XIII(7) election?
A treaty election that steps up U.S. basis to the value used for Canada's departure tax, preventing double tax on the same gain.
When do I make it?
On a timely filed U.S. return for the year of the move, with Form 8833.
Does it apply to my RRSP?
No — RRSPs aren't subject to the departure tax's deemed disposition.
What if I forget to make it?
The U.S. may tax the pre-move gain again on a later sale. For moves on or after March 29, 2010, Rev. Proc. 2010-19 requires the election on a timely filed return, so it generally can't be added later on an amended return.
Official sources
The IRS explains: “If you are a U.S. citizen or green card holder living in Canada, you still have to file a Form 1040 and report your worldwide income because of the "saving clause" in Article XXIX(2), which allows the United States to tax its citizens and residents as if the treaty had not entered into effect.” — Internal Revenue Service, Publication 597 (10/2015), Information on the United States–Canada Income Tax Treaty, https://www.irs.gov/publications/p597
The IRS explains: “Taxpayers use this form to make the treaty-based return position disclosure required by Internal Revenue Code section 6114. Dual-resident taxpayers use this form to make the treaty-based return position disclosure required by Regulations section 301.7701(b)-7.” — Internal Revenue Service, About Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), https://www.irs.gov/forms-pubs/about-form-8833
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle move-year basis planning — Article XIII(7) elections, Form 8833 disclosures, and coordination with Canadian departure returns. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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