Hi,
I moved from Ontario in May,2005 and worked in the US after then.
I used form 2555 to exclude part of Canadian source wage earned during jan05 to apr05. but I still have canadian source wage ($7057) left over. IRS of course will tax on this amount and I will take foreign tax credit (1116) for the tax withheld by CRA. (BTW, I only got $389 foreign tax credit as calculated by turbotax which seems quite small to me)
I know in my CND return, I can claim foreign tax for the US source income. but how do tell CRA that IRS had taxed on the excessive amount ($7057) which had already taxed (withheld) by CRA? It seems to me both country would taxed on that amount which is unfair to me.
Thanks,
Calvin
Using 1116 and 2555 at the same time.
Moderator: Mark T Serbinski CA CPA
Generally, you don't get 'full' credit when you use 1116, becuse 1116 credits you on your effective taxrate,while the income is added at your marginal rate.
That is one reason that you get to carry-over the extra for future years.
CRA will not give you any extra credit, since you should not be reporting any US income on your Cdn exit treturn.
The IRS however doea have a very complex remedy for this situation, which is the 're-sourced by treaty' category of 1116.
I will not describe it in detail, but it involves 're-sourcing' just enough of your US income into foreign income to use up your Cdn tax. It is most often used by US citizen living in Canada, and having income from both countries. It is possible that IRS would deny this re-sourcing attempt based on the fact that you are electing to be treated as a full-year resident, but they should not, in my opinion.
------
Remember, you have excluded about $25,000 of your Cdn-source wages already so that portion of your Cdn taxes is not eligible for 1116 at any rate, so your pro-rated Cdn tax on the $7000 that you did not exclude, is only about 20% or so of your overall CDn tax. And its your calculated Cdn tax that you use, not your withheld tax.
And don't forget all you othr 1116's for your other types of income. They aren't part of 2555.
That is one reason that you get to carry-over the extra for future years.
CRA will not give you any extra credit, since you should not be reporting any US income on your Cdn exit treturn.
The IRS however doea have a very complex remedy for this situation, which is the 're-sourced by treaty' category of 1116.
I will not describe it in detail, but it involves 're-sourcing' just enough of your US income into foreign income to use up your Cdn tax. It is most often used by US citizen living in Canada, and having income from both countries. It is possible that IRS would deny this re-sourcing attempt based on the fact that you are electing to be treated as a full-year resident, but they should not, in my opinion.
------
Remember, you have excluded about $25,000 of your Cdn-source wages already so that portion of your Cdn taxes is not eligible for 1116 at any rate, so your pro-rated Cdn tax on the $7000 that you did not exclude, is only about 20% or so of your overall CDn tax. And its your calculated Cdn tax that you use, not your withheld tax.
And don't forget all you othr 1116's for your other types of income. They aren't part of 2555.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best