Canadian Resident with US Income

Beauzeaux · Post by **Beauzeaux** » Sun Apr 09, 2006 9:14 pm

I lived in Canada all of 2005 so I'm deemed resident for tax purposes. I became a permanent resident in February 2006 though I'm still a US citizen.I am a self-employed writer and all my income (royalties and work-for-hire) was from US sourcesa.
I know I have to file both US and Canadian returns but which one first? Both returns allow a foreigh tax credit. Do I file a Canadian return and then take the freign tax credit when I file my US return? Or is it the other way around?

nelsona · Post by **nelsona** » Mon Apr 10, 2006 7:01 am

As a self-employed writer, unless you had taxes withheld in US for 2005, you have nothing to report in IRS, as you owe nothing to US.

If funds were withheld, file a 1040NR, and exclude all income, to get any tax back.

Report all income in Canada in 2005, paying Fed/prov tax as well as CPP.

Beauzeaux · Post by **Beauzeaux** » Mon Apr 10, 2006 10:14 am

nelsona wrote:As a self-employed writer, unless you had taxes withheld in US for 2005, you have nothing to report in IRS, as you owe nothing to US.

Ah, would that were true. But unfortunately the US taxes on the basis of citizenship if you live outside the country. They don't care where I live or where the money was earned. As long as I'm a US citizen, I must pay US taxes.

Canada taxes on the basis of residence and I'm a Canadian resident..

So, having to file in both countries, I need to know which return is filed first, because it's the second return that takes the foreign tax credit .

nelsona · Post by **nelsona** » Mon Apr 10, 2006 10:37 am

Ah, sorry missed the all-important fact that you are US citizen

Thought your reference to PR was Green Card.

Let's start over.

All your income is considered Cdn-sourced, so Canada will not give you any tax credit. It does not amtter that you were getting paid by a US company, you are self-employed, and living in canada. If you were not a US citizen, you would owe nothing in US, and the treaty says that that is what Canada is obliged to credit you : nothing.

So, For US, your 1040 will include all income, and you can and should use 2555 to exempt upto $80,000US of your writing income (self-employed) and forms 1116 for the rest (interst, cap gains, dividends, etc).

Whateever extra tax you pay is not recoverable.