Re-sourcing US income to Canada

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curious1
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Re-sourcing US income to Canada

Post by curious1 » Tue Feb 05, 2019 10:59 pm

For US citizens living in Canada, what types of US income (other than US pension income) can be re-sourced to Canada when calculating the foreign tax credit. Can US based deferred compensation be re-sourced to Canada? Capital gains? Thanks!

nelsona
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Re: Re-sourcing US income to Canada

Post by nelsona » Wed Feb 06, 2019 11:56 am

Income that gets "re-sourced" is income which Canada does not grant full tax credit for on the CDn tax returns, due to it being income that would not otherwise be taxed in US, but for the fact that the taxpayer is a US citizen/GC holder (living in Canada).

So, one is US-sourced interest (which is non-taxable for all non-residents of US who are not USC/GC). One would re-source all the US interest.

Another is tax on US dividends if it exceeds 15% (Canada will only give credit for 15%). You would re-source sufficient US dividends to reduce the tax on those to 15%. there are a couple of other types that are taxed at a specific ratevfor Cdns which may be lower than the effective taxa rate of your US return (Royalties, etc.

Business income earned in US not connected to a US fixed base would not be taxable in US for non-USC/GC, so those get re-sourced.

Cap gains are considered Cdn-source, so regular FTC's apply.

Curious on your comment that you think that pensions are re-sourcable. What makes you think that? Want to see where you are headed on this, since generally they are not. Generally, Canada grants full credit for US tax on pensions,
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

nelsona
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Re: Re-sourcing US income to Canada

Post by nelsona » Wed Feb 06, 2019 12:02 pm

Deffered compensation is treated like wages, so Canada will grant you full tax credit on any tax in US (and fica). The only exception is if the entire compensation for the year is less than US10K, in which case, CRA does not grant any tax credit, and expects you to re-source the amount, since that amount would not be taxable in US for a Cdn resident who was not USC/GC.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

curious1
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Re: Re-sourcing US income to Canada

Post by curious1 » Wed Feb 06, 2019 3:20 pm

That’s very helpful. Thanks. Regarding US sourced (IRA) pension, my understanding is that Canada does not allow one to claim a pension related FTC greater than 15%. In order to avoid double taxation, this is dealt with under the treaty by allowing the pension income to be re-sourced to Canada, which in turn allows one to claim a FTC on the US return to offset any remaining Canadian tax. Does that sound right?

nelsona
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Re: Re-sourcing US income to Canada

Post by nelsona » Wed Feb 06, 2019 5:39 pm

The 15% on ftc limit on some income (technically foreign PROPERTY income) does not apply for US pensions, US wages, US rental income , so you might want to look into that. However, if you are getting a "periodic" pension (rather than a lump sum, indeed your tax (if you were not USC/GC) would be 15%, and then the limit would kick in.
There is a subtle but important difference between foreign tax that (a) exceeds CRA's limits for certain income from property, and (b) that exceeds what a Cdn would pay if he wasn't a US citizen. The 15% pension limit falls under (b), and only if the pension payouts were considered by IRS definition to be periodic.

And remember that taxes for FTC purposes are always based on effective tax rate, not marginal.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

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