My Canadian citizen ( only ) wife makes about 60K.
I'm dual citizen residing in Canada commuting to work in US
We are wondering if the current provisions to transfer up to 50k of my income to her, for Canadian Federal tax purposes, would make sense.
I make considerably more than 60K and could use the entire 50k transfer.
We have a child under 18 living at home, so we meet that requirement.
Since she wants nothing to with IRS, I file MFS in US and she doesn't file in US.
Would I have to switch to MFJ to do this? I don't think so, this would only impact what I owe in Canada, correct?
Since I'm using my US Taxes as Canadian credits, it would just reduce what I owe in Canada ( I usually owe a little...) and not impact my US Federal and State returns at all?
Have any fellow commuters looked at this?
New CCRA Income Splitting rules, for commuter with CDN wife
Moderator: Mark T Serbinski CA CPA
The income splitting provison is slightly different than the pension splitting arrangement that was introduced a few years ago - that program should not be used by a US citizen off-loading Cdn pension income to their Cdn spouse.
I believe in this case, the individual incomes are not changed, just the deduction, and -- more importataly -- the deduction can be taken by either spouse.
So, if you wee both living in canada for example, and you did this, you could geive her the deduction, lowering her Cdn tax, but not lowering your Cdn tax, to be used on your US return as a credit.
So, there is some play here for US citizens earning CDn-source income, but who does not use 2555.
I see no harm in you doing the split, since it has litle impact on your US taxes (it might if you had lots of Cdn non-wage income). However, I would be running both Cdn returns with one spouse taking the credit and then trying the other. You don't want to get into a situation where some of your US tax is "unusable", because you have lowered you Cdn tax too far. Some people in your situation do this by putting too much in their RRSP.
Just a couple of points. You can only "off-load" as much income to make yours and hers equal -- no more. So to be able to move $50K, you need to earn $100K more income than her.
And you need to have a child in the home.
I believe in this case, the individual incomes are not changed, just the deduction, and -- more importataly -- the deduction can be taken by either spouse.
So, if you wee both living in canada for example, and you did this, you could geive her the deduction, lowering her Cdn tax, but not lowering your Cdn tax, to be used on your US return as a credit.
So, there is some play here for US citizens earning CDn-source income, but who does not use 2555.
I see no harm in you doing the split, since it has litle impact on your US taxes (it might if you had lots of Cdn non-wage income). However, I would be running both Cdn returns with one spouse taking the credit and then trying the other. You don't want to get into a situation where some of your US tax is "unusable", because you have lowered you Cdn tax too far. Some people in your situation do this by putting too much in their RRSP.
Just a couple of points. You can only "off-load" as much income to make yours and hers equal -- no more. So to be able to move $50K, you need to earn $100K more income than her.
And you need to have a child in the home.
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In other words, if when doing your taxes now, without the family tax cut, you owe say $1000 to CRA, but after you take the cut of, say $1500, you owe nothing, that should tell you to put the family credit credit on her return.
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It looks like the family tax cut DOES affect foreign tax credit calculation, as this comes after that on your return.
So, I would say, use the family tax cut only if it reduces your Cdn (fed and prov) tax owing by the FULL amount of the credit. Any less, and give the credit to your spouse.
So, I would say, use the family tax cut only if it reduces your Cdn (fed and prov) tax owing by the FULL amount of the credit. Any less, and give the credit to your spouse.
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Not quite sure I understand the last post.
I guess I don't fully understand the Family Tax Cut program.
If I transfer, say, $50k of income to my wife, I would not be able to use the US tax paid on that income ( prorated, I guess ) as Foreign Tax credit.
I'd expect that, otherwise this would be ridiculous.
I didn't realize the credit could be applied to either return...obviously my wife would owe more if she pays tax on more income, and I would owe less ( the credit ), so the credit could be applied to either my return, or hers?
I know the max is $2000 credit, in any case.
So realistically, if her marginal rate is say 35%, and mine is 50%...
I transfer $13,333k of income to her..she will owe an extra $4666 but I would save $6666, for net benefit of $2000...correct?
Then your post is about which return the $2000 should be applied to?
I'd need to owe $2000 to CCRA, prior to any split, for this example to be worth while?
( or adjust the split amount to bring my CCRA liability to exactly zero? )
and this is irrelevant to IRS, state income tax, correct?
I guess I don't fully understand the Family Tax Cut program.
If I transfer, say, $50k of income to my wife, I would not be able to use the US tax paid on that income ( prorated, I guess ) as Foreign Tax credit.
I'd expect that, otherwise this would be ridiculous.
I didn't realize the credit could be applied to either return...obviously my wife would owe more if she pays tax on more income, and I would owe less ( the credit ), so the credit could be applied to either my return, or hers?
I know the max is $2000 credit, in any case.
So realistically, if her marginal rate is say 35%, and mine is 50%...
I transfer $13,333k of income to her..she will owe an extra $4666 but I would save $6666, for net benefit of $2000...correct?
Then your post is about which return the $2000 should be applied to?
I'd need to owe $2000 to CCRA, prior to any split, for this example to be worth while?
( or adjust the split amount to bring my CCRA liability to exactly zero? )
and this is irrelevant to IRS, state income tax, correct?
Don't worry about who OWES how much to CRA, worry about how much both of you PAY under the 2 scenarios.
Your income doesn't change regardless of who takes the credit. What changes is the Cdn tax you paid on that US income, which will be lower if you take the credit, and may limit how much US tax will be credited to you. Think of it simply as a deduction that either of you can use. It is not like the pension splitting.
There are plenty of examples of how it works on your Cdn return on various websites, so I won't go into that. it is not quite as you describe.
What I'm saying from a cross-border point of view is to be careful (like all commuters) to not lower your Cdn tax so much that your end up leaving US tax on the table, when your spouse could use the same credit and you as a couple get the full benefit.
Just do it both ways and see -- not what one owes CFRA over the other, but what your total tax bill is.
Your income doesn't change regardless of who takes the credit. What changes is the Cdn tax you paid on that US income, which will be lower if you take the credit, and may limit how much US tax will be credited to you. Think of it simply as a deduction that either of you can use. It is not like the pension splitting.
There are plenty of examples of how it works on your Cdn return on various websites, so I won't go into that. it is not quite as you describe.
What I'm saying from a cross-border point of view is to be careful (like all commuters) to not lower your Cdn tax so much that your end up leaving US tax on the table, when your spouse could use the same credit and you as a couple get the full benefit.
Just do it both ways and see -- not what one owes CFRA over the other, but what your total tax bill is.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing