Where to learn about re-sourcing

[broadwayman]

I keep reading about "re-sourcing" of wages and interest and dividends for the foreign tax credit rules but I don't know how they work nor do I know where to look to learn about them.

Can you provide some guidance on when wages are "resourced" and when investment income is resourced?

I am a US citizen living in Canada.

Thanks

[nelsona]

For US citizens living in canada, but having both Cdn and US source income, the US-source income can be re-sourced such that the 'left-over' Cdn tax, not used in the other 1116s, is used up such that no Cdn tax is wasted.

You must have similar US income, and not all income that comes from US is US-source (non-real estate cap gains, for example are ALWAYS sourced in the country you live).

Rather than provide an example, I'll simply point you to the technical expalnation of the treaty. The examplesa re really simple, but almost impossible to understand. Therea re probably one a half-dozen cross-border typoes that evn know about these, let alone do it correctly.

www.irs.gov/pub/irs-trty/canatech.pdf section on Article XXIV

[broadwayman]

Not being a lawyer (or a tax professional), I will try to read the treaty and hopefully understand it. Thanks for your direction.

These baskets are killing me. 2 more questions. Interest that I receive from CIBC---does that go into the "high tax withholding interest" basket? (even though there is no withholding? on teh T5?)

And is pension income, like CPP or teachers pension (for my wife), "passive" income? (I thought it would not be because it relates to working activity.

Love your site. Thanks agian for all your help!

B.

[nelsona]

Your interst is not 'high taxed' since it doesn't have withholding against it (it would be if you lived outside canada).

Your pension income is 'general limitation' income. Passive income is from investments.

CPP is NOT taxable in US by treaty (nor is your SS by the way), so there should not be any reporting of it on your 1040, so no 1116 is required. an 8833 form should be filed with your 1040 quoting the Article XVIII.5.

In canada, your SS is only to be taxed at the 85% inclusion rate, which means you remove 15% of it on line 256 of your cdn return.

I understanbd that next year there will be fewer baskets.

[broadwayman]

I appreciate your help...my headache is starting to break....

[broadwayman]

Sorry about this lingering question...where can I see that the IRS says pensions are general limitation? I read the FTC publicaton on IRS website and it does not mention pensions as general. Could it be passive? ( a better result for me)

Thanks again.

PS do you work for Serbinksi or just a consultant that answers all these questions? If I booked an appontment with you would it be thru Serbinski?

Thanks

[nelsona]

There is no way that pension meets the definition of passive income. That is why it is gen limit.

And I wouldn't know why reporting it on a different 1116 would make much of a difference. $100 reported as passive will yeild the same credit as $100 reported as gen limit, since the Cdn tax on it is identical:
100/(total income) * total Cdn tax.

[broadwayman]

Your response makes sense.

Thanks, again....