how to handle a US bankruptcy settlement payout

lanman2000 · Post by **lanman2000** » Wed Sep 23, 2009 3:50 pm

hi there,

I am a dual citizen (US/Canada) who just moved back to canada this year after 10 years in the US. I am about to receive a distribution from a bankruptcy claim against my former employer in the US that I was working at when I was living in California. The bankruptcy trustee is asking me to fill out a IRS Form W-4 and I am not sure how to do it for this claim payout because right now as I am about to receive it I am a Canadian resident. I think i am going to have to declare this as income on my canadian return this year and pay taxes on it but if I fill out the W-4 they say they are going to take withholding from the claim. Am I going to be double taxed? Is there any way around this?
Any help is MUCH appreciated.

nelsona · Post by **nelsona** » Wed Sep 23, 2009 7:42 pm

Not much wat around being taxed in canada, since you are resident there.
The tax you pay in US will be credited against your Cdn tax, so there will be no double tax, just Cdn tax rate in the end.

lanman2000 · Post by **lanman2000** » Wed Sep 23, 2009 9:10 pm

so then US source income is supposed to be taxed by the US first and then canada gets to grab the difference between the us rate and the canadian rate?

sorry for the pretty basic question but that isn't clearly plainly spelled out anywhere i've been reading...

if that is the case then unemployment insurance checks that i received from california during my first little while after moving to canada would follow the same route for taxation right?

nelsona · Post by **nelsona** » Thu Sep 24, 2009 4:08 am

Yes, and Yes.

lanman2000 · Post by **lanman2000** » Thu Sep 24, 2009 6:47 am

everything makes sense now. Thank you!