Foreign Tax Credit and Distribution from Canadian RRSP

DBRAGG · Post by **DBRAGG** » Wed Jan 07, 2009 3:34 am

January 7, 2009

I am a U.S. citizen resident and I have a tax return question related to the calculation of the foreign tax credit for a distribution from a Canadian RRSP.

If we assume the following facts: a) A Canadian RRSP is collapsed and the total distribution is $20,000 U.S. to be reported on line 16a of the 1040 b) The Canadian withholding tax is 25% or $5,000 U.S. c) The taxable portion of the distribution is $12,000 to be reported on line 16b of the 1040.

Is the gross income from foreign sources reported on line 1a of the form 1116 $20,000 or $12,000? It makes a big difference in the amount of the foreign tax credit calculation.

Thanks for your consideration.

nelsona · Post by **nelsona** » Wed Jan 07, 2009 6:06 am

It is $12,000. :Gross" in this case means before any other deductions or credits specific to that income.

make sure you use software to calculate Form 1116.

Kiki2466 · Post by **Kiki2466** » Mon Jan 26, 2009 1:55 pm

Which software does this? Turbotax?

nelsona · Post by **nelsona** » Mon Jan 26, 2009 1:58 pm

Turbotax and taxcut both handle 1116. Turbotax is advantageous since it also handles Form 8891 which you need.

Kiki2466 · Post by **Kiki2466** » Tue Jan 27, 2009 12:02 am

So on the NR4 for the pension....It was about $16,000 gross and $12000 net after taxes ..Does he report the $16000 or $12000 net after tax on the form ?

Regards,

nelsona · Post by **nelsona** » Tue Jan 27, 2009 8:25 am

The taxes are NEVER taken away from the gross.

He reports $16K (converted in US at the time) as both the gross and net pension income (or, annuity income as the IRS person said).

And $16000 (converted to US) goes on the Form 1116. Then the taxes paid are listed on the "foreign taxes paid" line, and then the form will calculate how much of that $4000 is usable.

Kiki2466 · Post by **Kiki2466** » Tue Jan 27, 2009 9:08 am

Gotcha....thanks!

Kiki2466 · Post by **Kiki2466** » Tue Jan 27, 2009 7:32 pm

[/quote]

The taxes are NEVER taken away from the gross.

He reports $16K (converted in US at the time) as both the gross and net pension income (or, annuity income as the IRS person said).

And $16000 (converted to US) goes on the Form 1116. Then the taxes paid are listed on the "foreign taxes paid" line, and then the form will calculate how much of that $4000 is usable

[quote]

Well maybe not "gotcha" :oops:

I am unclear as to one point : you mention that taxes are never taken away from the "gross amount" but say to use the $16,000 on the form which was the gross on the NR4...Please clarify and thanks again for all your help..we appreciate it!

nelsona · Post by **nelsona** » Tue Jan 27, 2009 8:50 pm

I don't know any other way to put it. You pension income, both gross and taxable pension income is the same amount: 16K in USD. taxes witheld can never be used to reduce gross income to taxable income, this appies to all types of income.

KevMontana · Post by **KevMontana** » Thu Jan 29, 2009 10:45 pm

Thank you Nelsona....I'm Kiki's husband and I'm now working on the 1116 using turbo tax..I have converted the 16,000 pension lump sum buyout to USD and now I have a choice in turbo of 1. passive 2. Lump Sum 3.Section 901 4.Income resourced by treaty 5. General....I figure it is either General or Lump sum for income choice but if I use lump sum than it says I didnt declare a section in IRA and Pension Distributions...General does not say this..they both end up at the credit line 16 eventually...

I want to make sure I am in the right category of income to begin..Thank you..

nelsona · Post by **nelsona** » Fri Jan 30, 2009 6:18 am

I belive I already told her in her other thread that it was general income.