figuring out T2209

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gordito
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Joined: Thu Apr 09, 2015 2:37 pm

figuring out T2209

Post by gordito »

I am having a hard time figuring out how to find the values I need to provide to CRA for foreign tax credits. I'm guessing none of this will matter as I will send them our return, w2, 1040 and they will figure it out anyway... but I digress.

Back story: I had income from US all of 2017 but I moved to Canada on August 1st. Wife had income in US until May and no US income while in Canada (after June). I understand I only need to declare 8/12 of my income and taxes but I'm not sure how to figure out my US taxes since our 1040 was filed jointly. Basically, I'm not sure how to disentangle her from my taxes I need to report to CRA.

We filed 1040 jointly in US... I'm guessing it may have not been the smartest in hindsight(!).
nelsona
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Re: figuring out T2209

Post by nelsona »

First, you only need to report 5/12ths of your income, ie, from August to December.
Now, for your income you can either say it was 5/12ths of the year, or you can say it was all income after July 31. If you have your July 31 paystub, you can simply subtract that from the yearly totals. That way if you received bonus in the first part of the year, you are not including it in your Cdn return.

For tax, you use the prorated amount from your return, your post-July income over all gross income on your 1040 (both of yours) and divide the final tax by that ratio. Also include the same for joint state tax return, and your SS and Medicare.

The Cdn tax you owe on the US income is fixed, all you are figuring is the amount of US tax you can use towards it, so saying that you should have filed separately in US, which would have meant paying more tax, is not really the best thinking. You still would end up dividing your final tax by a ratio.
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gordito
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Joined: Thu Apr 09, 2015 2:37 pm

Re: figuring out T2209

Post by gordito »

Hi Nelsona, thank you so much for all the help. Your answer got me even a bit more confused though :) I am still grappling with using for foreign tax credits both of our incomes when Canada should not care about my wife's US income since she was not even in Canada when it happened. My understanding was that we do not need to disclose to Canada this income as she was not a resident of Canada. She stopped working in US and came into Canada - unemployed - and only started to get a salary in September. Yet, we are declaring 5/12 of our combine gross income (37 on 1040) and and taxes (63 on 1040). How would we go about her social and medicare, why would we do 5/12 of that since it was only jan-may?

This is why initially my idea was 5/12 of my gross income, social security (from w2) and medicare (from w2) but leaving my final tax a bit more confusing as we filed jointly. Is there a fundamental part that I'm missing here? Do I also need to add to her CRA return her US income even though she wasn't in Canada when it happened?

I notice in my Virginia state return that they list my tax to VA (part I, line 4).
nelsona
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Re: figuring out T2209

Post by nelsona »

Reread what I said.

You use "YOUR post-July income OVER all gross income on your 1040 (both of yours)" That is the ratio.

If you made $50K after July, and you both reported a total $200K on your 1040 for the entire year, then you get to claim 50/200 of the US tax bill as the credit on your Cdn return.
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nelsona
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Re: figuring out T2209

Post by nelsona »

None of her US income should appear on her Cdn tax return. So she doesn't need any tax credit on her Cdn return.

She does need to include her Cdn income on your joint US tax return, in order for you to get the best taxrate for the year. But she will be able to cliam the Cdn tax she paid as a credit on her US return, against the US tax on her Cdn source income.

I'll agree that you made your taxes complicated by "half-moving" to Canada, but there is a process to follow, and it is ALWAYS based on ratio of income vs gross income applied to the over all tax.
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gordito
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Joined: Thu Apr 09, 2015 2:37 pm

Re: figuring out T2209

Post by gordito »

Thanks so much, that ratio makes sense to figure out the tax for the 1040. So simple, yet I was making it more complicated. Regarding her income in Canada, we used form 2555 for foreign earned income when we filed in US. I guess you are suggesting we should have not excluded this using 2555 and then deal with the credits on the Cdn return? We filed the US first... I was more worried about that one.

I have found the ratio of my part year earnings (5/12) to total income to be about 0.3. 1040 tax income gets multiplied by that ratio as well as VA tax, seems logical. But should I also use that ratio for our combined Medicare and Social? Seems like I should only do it for my own multiplied by 5/12. I feel close to being done :)
nelsona
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Re: figuring out T2209

Post by nelsona »

No, you were fine excluding her income using 2555, that is usually best. Of course, that also means that you reduce your gross income for determining the ratio of US tax you include, so that is also a good thing.
As I said earlier, the SS and medical should only be yours from August forward, which you can see from your paystubs, or you can use 5/12. No need to use overall ratio, since it isn't calculated on your tax return, and hers has nothing to do with this.
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gordito
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Re: figuring out T2209

Post by gordito »

Thanks, sounds good then. Deposits interests should also be declared right? 5/12 of yearly amount declared by my bank I'm assuming. If I sold stock/mutual funds before august, do I need to report them? Since I already entered the combined tax for my income I assume I leave this part empty in ufile. Basically, it's a similar entry for income/interest/capital gains.

I was thinking about writing a cover letter explaining to CRA my calculations and our timeline. Is this a good thing or I shouldn't bother at all ? I'm guessing it would help them understand where the 5/12 fraction comes from. Even though it's a small amount I wonder if they won't ask why I'm not declaring my mutual funds income if indeed I do not need to declare them.
nelsona
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Re: figuring out T2209

Post by nelsona »

You should be declaring all world income received after august 1st. There is no need to guess what this is. You look at your bank statements from Aug to December. The 5/12th was merely to differentiate between your original claim of needing to report 8/12ths.

You can easily find exactly what your income was from Aug 1 onwards.
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gordito
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Joined: Thu Apr 09, 2015 2:37 pm

Re: figuring out T2209

Post by gordito »

Oh, so you mean what I should report to CRA is my income into my bank account after August 1st, not 5/12 of the gross on my w2? This makes a big difference!
nelsona
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Re: figuring out T2209

Post by nelsona »

Yes I said that in my original response.
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