My wife, minor daughter and I moved to Canada in August 2003. My daughter is a dual citizen – US and Canada. My wife is Canadian citizen and held a US green card until she surrendered it in July of 2004 and received form I-407 as a receipt. She did not have the US green card long enough to “qualify” as a lawful long term resident in the US. I am a US citizen and permanent resident of Canada. I am employed in Canada by a Canadian company. My wife is not and was not employed in 2004. We filed a joint US 1040 as married couple in 2003.
We are thinking to approach our 2004 US tax returns in the following manner. I’ll submit 1040 as married filing separately and claim my daughter as a dependant. I’ll claim the foreign earned income exclusion on my return, which is more than enough to offset any US tax liability on my salary. Interest income I have will fall well below the personal exemption. My wife would really like to file 1040NR for 2004. She would probably have to put the interest income we have from a joint US bank account on which interest is reported to her SSN on that 1040NR? In general, is it permissible for us to file that way? If we were to file a joint married 1040 return for 2004, can my wife file 1040NR in 2005? Can I do the accounting based on an average exchange rate for 2004 and where can I get that rate? If I elect the income exclusion for 2004, can I use another method in future tax years, or am I locked in?
Question on Canadian taxes: We have interest income from separate and joint bank accounts. Interest from some of the joint accounts is reported to my SIN while others are reported to her SIN. I would like to report all joint interest income on her Canadian return, in order to minimize our joint tax liability. Is this allowed?
CDN and US tax returns for “multi-citizen” family
Moderator: Mark T Serbinski CA CPA
Why make things so complicated?
If your wife is not a US GC-holder, why should she file anything in US, if she has no US-source income.
Her interest is not reportable in US, especially the portion earned after July 2004. Surley she does not have thousands of dollars of interest from the first part of the year.
Another question would be why she surrendered her GC in the first palce? There was no tax advantage to doing so, as she would likely not be taxable in US just like you aren't. And there will be years sureley when you will want to file jointly, so giving up GC was pointless methinks.
Now when you want to move back to US you'll have to re-apply for her, which will cost you much more than any imaginary tax reasons for rescinding it.
May I ask why she did this? Perhaps there is some reason I am missing?
Seems like a lot of commotion to go thru for nothing.
As to reporting your interest on your Cdn return (remember you have to report ALL interest, even form US), the rule that CRA applies is that the interest in a joint account is reported proportionally by the amount each person contributed to the account. If you put in $50K and she put in $20, you report 99% of the interest.
Again, I somehow feel that you probaly only got pennies of interest in 2004, so worrying about this is not worthwhile.
What's with all the over-complications? You would really enjot 'rhollan's posts.
And on choosing FEIE one year and then FTC the next. I believe you are allowed to make the switch only once or twice in a period of several years. You cannot change year after year.
<i>nelsona non grata</i>
If your wife is not a US GC-holder, why should she file anything in US, if she has no US-source income.
Her interest is not reportable in US, especially the portion earned after July 2004. Surley she does not have thousands of dollars of interest from the first part of the year.
Another question would be why she surrendered her GC in the first palce? There was no tax advantage to doing so, as she would likely not be taxable in US just like you aren't. And there will be years sureley when you will want to file jointly, so giving up GC was pointless methinks.
Now when you want to move back to US you'll have to re-apply for her, which will cost you much more than any imaginary tax reasons for rescinding it.
May I ask why she did this? Perhaps there is some reason I am missing?
Seems like a lot of commotion to go thru for nothing.
As to reporting your interest on your Cdn return (remember you have to report ALL interest, even form US), the rule that CRA applies is that the interest in a joint account is reported proportionally by the amount each person contributed to the account. If you put in $50K and she put in $20, you report 99% of the interest.
Again, I somehow feel that you probaly only got pennies of interest in 2004, so worrying about this is not worthwhile.
What's with all the over-complications? You would really enjot 'rhollan's posts.
And on choosing FEIE one year and then FTC the next. I believe you are allowed to make the switch only once or twice in a period of several years. You cannot change year after year.
<i>nelsona non grata</i>
Nelson - thank you for your comments. The decision to surrender GC has nothing to do with taxation. The last time we traveled through the US we were hasseled because we have a Canadian address (customs form) and my wife was a GC holder - 3 hours delay and a missed connection. Filing for a re-entry permit delays expiry of GC for 2 years. We do not intend to move back South during that time frame. Why should my wife have kept the GC?
Our 2004 interest income is around $6000 (proceeds from sale of US house prior to moving sitting in banks for a while). That may be pennies to you, but it is certainly not for me. So should my wife file in the US or shouldn't she? It may be best for us to file jointly, but we do not want to if we don't absolutely have to (at least one of us doesn't).
I cannot figure out retroactively with any degree of accuracy (for CND taxes) how much my wife and how much I put in. May be 50% each is the best approach.
Finally FEIE covers my situation for now, but going forward it may not. So if I can make one switch to FTC that will cover my situation.
Thanks again.
Our 2004 interest income is around $6000 (proceeds from sale of US house prior to moving sitting in banks for a while). That may be pennies to you, but it is certainly not for me. So should my wife file in the US or shouldn't she? It may be best for us to file jointly, but we do not want to if we don't absolutely have to (at least one of us doesn't).
I cannot figure out retroactively with any degree of accuracy (for CND taxes) how much my wife and how much I put in. May be 50% each is the best approach.
Finally FEIE covers my situation for now, but going forward it may not. So if I can make one switch to FTC that will cover my situation.
Thanks again.
That certainly is a lot of interest.
The interest your wife earned before rescinding her GC is reportable in US. The interest after is not, but she might choose to report it on either your or her own full 1040.
Since she didn't work, she is probably better of joining you on a 1040 and declaring ALL her income for the year, with the benefit of bigger deductible (that is why I said it was pointless from tax point of view to rescind GC).
Otherwise she still has the option of filing 1040 for first part and 1040NR for scond part. Or 1040 full year separately from you.
I'm quite sure one or all of these situations will yield no US tax on your wife's income.
All the interest you earned in 2004 is reportable on your 1040.
As I said, FEIE and FTC are not interchangeable an unlimited number of times. Once you switch from one to the other, you cannot switch back for a couple of years. There is a specific rule on this.
I'll let you do the research on that... let us know what you find.
As to your wif's GC problems, She was treated corrctly. The solution would have been to rescind immediately or apply for re-entry permit BEFORE leaving US. Given your situation, best to get rid of it I guess... but it will cost you when you decide to return.
<i>nelsona non grata</i>
The interest your wife earned before rescinding her GC is reportable in US. The interest after is not, but she might choose to report it on either your or her own full 1040.
Since she didn't work, she is probably better of joining you on a 1040 and declaring ALL her income for the year, with the benefit of bigger deductible (that is why I said it was pointless from tax point of view to rescind GC).
Otherwise she still has the option of filing 1040 for first part and 1040NR for scond part. Or 1040 full year separately from you.
I'm quite sure one or all of these situations will yield no US tax on your wife's income.
All the interest you earned in 2004 is reportable on your 1040.
As I said, FEIE and FTC are not interchangeable an unlimited number of times. Once you switch from one to the other, you cannot switch back for a couple of years. There is a specific rule on this.
I'll let you do the research on that... let us know what you find.
As to your wif's GC problems, She was treated corrctly. The solution would have been to rescind immediately or apply for re-entry permit BEFORE leaving US. Given your situation, best to get rid of it I guess... but it will cost you when you decide to return.
<i>nelsona non grata</i>
I found information on the interchangeablility of FEIE and FTC in Pub. 54 page 19: "Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it."
On page 20 it goes on: "You can revoke your choice for any year." You have to attach a statement to your return. You apparently have the option to revoke it for any number of years. I guess if you go back in time you must file amended returns. But once you do this you are locked out from choosing the exclusion, unless you manage to get an IRS ruling.
I conclude from this that the best course of action is not to choose FEIE, unless and until it really pays off. It appears to me that CDN taxes are sufficiently high that FTC will yield zero US tax liability in many cases and in my case as well, even though I havn't done the math yet.
Now, I wonder whether there are similar rules that lock you in once you decide to subject your alien spouse to US taxation on an MFJ 1040. At any rate, we are planning to file 1040 MFJ for 2004 as my wife held a GC for a little more than half of the year and keep our options open for subsequent tax years. We cannot know what ideas uncle Sam will come up with to fund his Middle East adventures.
On page 20 it goes on: "You can revoke your choice for any year." You have to attach a statement to your return. You apparently have the option to revoke it for any number of years. I guess if you go back in time you must file amended returns. But once you do this you are locked out from choosing the exclusion, unless you manage to get an IRS ruling.
I conclude from this that the best course of action is not to choose FEIE, unless and until it really pays off. It appears to me that CDN taxes are sufficiently high that FTC will yield zero US tax liability in many cases and in my case as well, even though I havn't done the math yet.
Now, I wonder whether there are similar rules that lock you in once you decide to subject your alien spouse to US taxation on an MFJ 1040. At any rate, we are planning to file 1040 MFJ for 2004 as my wife held a GC for a little more than half of the year and keep our options open for subsequent tax years. We cannot know what ideas uncle Sam will come up with to fund his Middle East adventures.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I conclude from this that the best course of action is not to choose FEIE, unless and until it really pays off. It appears to me that CDN taxes are sufficiently high that FTC will yield zero US tax liability in many cases and in my case as well, even though I havn't done the math yet.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I think you will find that choosing FTC will NEVER remove all US tax liability, as it is almost mathematically impossible to do so, especially considering AMT. You will owe US tax on your Cdn wages unless you FEIE.
Remember, just because you choose FEIE on your earned income. doesn't mean you can't ALSO choose FTC for you other income. The choice you are making only touches your wages, and only the first 80K, so FTC will be available for the portion above that too.
<i>nelsona non grata... and non pro</i>
I think you will find that choosing FTC will NEVER remove all US tax liability, as it is almost mathematically impossible to do so, especially considering AMT. You will owe US tax on your Cdn wages unless you FEIE.
Remember, just because you choose FEIE on your earned income. doesn't mean you can't ALSO choose FTC for you other income. The choice you are making only touches your wages, and only the first 80K, so FTC will be available for the portion above that too.
<i>nelsona non grata... and non pro</i>
Having to use FEIE is potentially bad news for me as I am not sure whether I meet the bona fide residence test or the physical presence test. I became a CDN PR on 08/30/03, but I took an extended trip with my family from 12/03/2003 to 01/15/2004 (43 days) to Europe to visit my mother. On the return we had a connecting flight in the USA. Other than that I have a few business trips to the US in 2004 (7 days). That comes out to 27 days outside of Canada in 2004. May be I do meet the physical presence test with more than 330 days at my new place of residence in Canada?