IRS 1099-INT and CRA

[Frankd1]

My wife (USC living and working in Canada as PR) has been receiving her additional child tax credit from the IRS by filing form 1116 with her 1040. She receives $2000/yr for our two children.

She just received a form 1099-INT in the mail from the IRS, this was for $48.25 interest that the IRS paid her in addition to her $2000 actc. This particular 2000 actc was for her 2012 return which we timely filed in 2013.

Because the IRS was so late in sending her the $2000 actc (they messed up when processing her return), they paid her that amount of interest on top. So the check was for $2048.25.

The 1099-INT form we just received is dated: 2014 calendar year. This is because the IRS didn't actually send her the actc until February 2014 when it should have normally been sent out about a month after they processed her return in 2013.


I was wondering how this is handled by CRA.....

Is this $48.25 interest income paid by the IRS taxable by CRA as world income? I am guessing that it is and needs to be reported to CRA on her Canadian return and taxes paid accordingly, because her place of employment and residence is in Canada full time.
From there I will include it on her 1040 as interest income when I file her IRS return, and then use form 1116 (with her other interest income from canada) to obtain the foreign tax credit.

Just curious about this as she has never received a 1099 while living in Canada..

[nelsona]

This tricky. Since it is interest from US, it would not be taxable in US to a Cdn resident if she was nota US citizen. Therefore Canada will not grant her a credit for any US tax that she might owe.

So, the process is to include it on US and CDn return, and file a 1116 under the re-sourced by treaty category, claiming just enough credit to reduce the US tax to zero on that particular income.

So, she will have a 3rd 1116 for her return this year. One passive one general amd one re-sourced. there is no carry forward on the re-sourced one.
The effect, and desired result of this exercise is that she pay the CDn tax on the interest and no more.

[Frankd1]

Thanks nelsona, that's kind of how I figured it would play out.

So basically we are going to file her CRA return first as we normally would, including that little bit of US interest income on her CRA return. There will be a small amount of Canadian tax that applies, as it would for any interest income in Canada.

Then file her IRS return by the automatic deadline extension date, including this interest income on the 1040 (line 8a) as well as schedule B.

1 form 1116 for gen limit income - wages from her regular job, self employment income from her small sole proprietorship home business, universal child care benefit etc.

1 form 1116 for passive limit income - bank interest from Canada

1 form 1116 for income resourced by treaty, that being this $48 interest income from the irs..

Thanks again

[nelsona]

Slight correction to your last point, the most you can re-source will be the amount you need to reduce the US tax to zero. So it most likely will not be the whole $48, and it may not even be needed, since you cannot carry forward re-sourced amounts.