Form 1116

[gdcinbc]

I am a US citizen with Perm Residence in Canada and have some investment within the US which yields high interest income. When filling out my US return, I read somewhere in cyber land that I need to file form 1116 so as to re-classify my interest income so that only 10% of it is taxed on my US return.

The issue I am having, is that in reviewing form 1116 I cant seem to figure out what line to place it. I have one investment firm to list which gives me interest so i am thinking this should be too difficult but i have managed to make it such!.

Help????
Cheers

[nelsona]

Not quite accurate.

There is a rather complex maneouver that will allow you to re-source a small portion of some types of income (in your case the interest) so that you only pay 10% tax, not report only 10% of the income.

In fact, you may be paying less than 10% tax on it anyways in US, so the re-sourcing may not be worth it.

The reason for the manoeuvre is because Canada will only grant a maximum 10% tax credit on the US tax on interest.

search for 'canatech.pdf' which is the IRS explanation of the treaty, to see if you can make head-or-tails of it.

As a start, it would be the "re-source by treaty" category which would apply.

But, seriously, unless you are paying more than 10% of your income (less the excluded portion) in US taxes, don't even bother wit this.

Put the interest on your US and Cdn return, and claim the US tax on it on your Cdn return as foreign tax.


nelsona non grata... and non pro

[jodor]

My question is about Form 1116 so I add it to this topic though it has nothing to do with the above situation.

My question is the difference between “passive income” and “high withholding tax interest” income. My NR4s from Canada report withholding tax of 10% on interest, 25% on rents and 15% on my wife’s pension. Therefore is this “high withholding tax interest” and should it be listed together on a separate 1116 from my 1116 showing a general limitation income (from Canadian wages).

Thanks for you comments

jodor

[nelsona]

Only the interest tax is High % tax.

The pension is 'gen limit'. The rent is probably passive: you can read the instructions.

You will thus need 3 separate 1116s.

nelsona non grata... and non pro