Thanks for your reply Nelson. I followed most of it but just one question.
"So, the very best you could do with 1040 MFJ adding your wife's income and her Cdn taxes as a credit. Compare this to a 1040NR with only your H1 income"
I also have the option of MFS here right with the above mentioned options.
Last year I filed as MFS and paid a lot of taxes to US and took foreign tax credit for it on my T1 and paid no tax ($25) to canada and did not use any RRSP. This year I have my last RRSP and this Years's RRSP (about $30000) to be taken. My wife filed her T1 and everything was fine as her cdn taxes are deducted from her paycheck and hence that balanced.
I could do the same this year but I wanna use my RRSP to the max and that means use MFJ in US. I meet the SPT test in US.
1) Now when I file MFJ in US. Will my wife have to pay any tax on her cdn income in US or can she use all her cdn tax paid from her salary (which is more than US tax rate).
2) when I file my T1, How do we divide the Tax we paid in US (MFJ) as a foreign tax credit on my and her T1.
I am a little confused so do not mind if I sound dumb in what I am trying to say here.
Thanks
Nelson - need your help
Moderator: Mark T Serbinski CA CPA
I said, the "best" you could do was MFJ. MFS, as you found out, cost you a lot in US tax. If you are happy with this situation, keep doing this. You willsimply be bulding up unused RRSP deductions for use when you have lower US income. This may be a good strategy.
I would prefer to pay less tax overall, using my RRSP contributions, which is what you would do with MFJ as I described.
1. Yes, your wife would pay some US tax on her Cdn salary if you declare it on 1040. and yes she could use her Cdn tax on that salary as a foreign tax credit (you can't since your wages are from US), but as i have been pointing out to sean, this credit never covers the added US tax 100%, not even 50%, regardless of how much Cdn tax she paid. That is how the 1116 calculations are set up.
So you are better of doing 2555 to exclude her income, since you met SPT.
2. If you do decide to include her income, you will simply divide pro rata the US tax by the income you both reported. So if you report $40K
and she reports $20K, you will be entitled to 2/3rds of the US tax as a credit on your cdn T1.
Your wife, since she earned no foreign income, is <i>not </i> entitled to any foreign tax credit on her Cdn tax return, <b>because she didn't earn any foreign income</b>. That is the first criteria for foreign tax credit in canada! Canada doesn't care what other taxes she maight pay on her cdn income, they aren't going to credit her for it.
Bottom line: Since you meet SPT (this was not clear before your last post), your absolute best way to file is an MFJ 1040 and -- if the Indian treaty allows it -- excluding your wife's Cdn wages by Form 2555.
This would lower your US tax sufficiently to lower your US tax credit, and get you to use some of your RRSP contributions as a deduction.
Again, it may simply be better for you to keep doing as you were doing, pay high US tax, little Cdn tax, and build up your RRSP for a future big deduction.
The second best way, would be the XXV.4 method, but this would require a TWO treaty declarations (one to state thata lthough you meet SPT you are really Cdn tax resident, and one to use XXV.4) as well as preparing a double tax return (one 1040 to determine you tax rate and one 140NR to pay the tax), and as you have found out, saving US tax does not really lower you over-all tax burden, it just shifts it to Canada.
<i>nelsona non grata</i>
I would prefer to pay less tax overall, using my RRSP contributions, which is what you would do with MFJ as I described.
1. Yes, your wife would pay some US tax on her Cdn salary if you declare it on 1040. and yes she could use her Cdn tax on that salary as a foreign tax credit (you can't since your wages are from US), but as i have been pointing out to sean, this credit never covers the added US tax 100%, not even 50%, regardless of how much Cdn tax she paid. That is how the 1116 calculations are set up.
So you are better of doing 2555 to exclude her income, since you met SPT.
2. If you do decide to include her income, you will simply divide pro rata the US tax by the income you both reported. So if you report $40K
and she reports $20K, you will be entitled to 2/3rds of the US tax as a credit on your cdn T1.
Your wife, since she earned no foreign income, is <i>not </i> entitled to any foreign tax credit on her Cdn tax return, <b>because she didn't earn any foreign income</b>. That is the first criteria for foreign tax credit in canada! Canada doesn't care what other taxes she maight pay on her cdn income, they aren't going to credit her for it.
Bottom line: Since you meet SPT (this was not clear before your last post), your absolute best way to file is an MFJ 1040 and -- if the Indian treaty allows it -- excluding your wife's Cdn wages by Form 2555.
This would lower your US tax sufficiently to lower your US tax credit, and get you to use some of your RRSP contributions as a deduction.
Again, it may simply be better for you to keep doing as you were doing, pay high US tax, little Cdn tax, and build up your RRSP for a future big deduction.
The second best way, would be the XXV.4 method, but this would require a TWO treaty declarations (one to state thata lthough you meet SPT you are really Cdn tax resident, and one to use XXV.4) as well as preparing a double tax return (one 1040 to determine you tax rate and one 140NR to pay the tax), and as you have found out, saving US tax does not really lower you over-all tax burden, it just shifts it to Canada.
<i>nelsona non grata</i>
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I am not an accountant and so can't give professional advice, just a relatively-informed opinion. Nelsona isn't either (AFAIK), but can probably give a better opinion<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Indeed, I am not a pro.
All the issues that have come up on this new site have all been adressed before on Grasmick, so we are not really inventing anything new here.
I'm only getting very specific on a few model cases, as they are the first ones on this site, but after a couple more weeks, especially as the tax deadlines approach, my answer will (and should) become more pointing to an IRS publictaion, or better yet, a previous trhread here.
<i>nelsona non grata</i>
Indeed, I am not a pro.
All the issues that have come up on this new site have all been adressed before on Grasmick, so we are not really inventing anything new here.
I'm only getting very specific on a few model cases, as they are the first ones on this site, but after a couple more weeks, especially as the tax deadlines approach, my answer will (and should) become more pointing to an IRS publictaion, or better yet, a previous trhread here.
<i>nelsona non grata</i>
-
bhand11683
- Posts: 11
- Joined: Tue Nov 16, 2004 12:46 pm
Thanks Nelson for all your advise
I guess I will do MFJ and will include my wife's Income as I do want to use my RRSP contributions. For me techinically, They are after tax (US taxes) and We may move to the US in a couple of years and then all the RRSP benefit will go waste or if I take it out, I will have to pay 25% non_resident tax which is a waste anyway of 25% of my money
So I guess I will use it as much as possible this year.
Thanks for all your support
I guess I will do MFJ and will include my wife's Income as I do want to use my RRSP contributions. For me techinically, They are after tax (US taxes) and We may move to the US in a couple of years and then all the RRSP benefit will go waste or if I take it out, I will have to pay 25% non_resident tax which is a waste anyway of 25% of my money
So I guess I will use it as much as possible this year.
Thanks for all your support
one more question, my first day in US was May 1st, and then my wife joined me on May 28. I need to pay canadian tax for my US income in this period (05/01 - 05/28). Thanks to all the information, I'll choose 2555+MFJ, can I still claim this portion of canadian tax(US income 05/01 - 05/28) on my 1044?
As I said in other threads, there is no need to report your US income in MAy to CRA, as your wife joining you a month after you left is close enough for May 1 to be considered your departure date (never mind what CRA might tell you if you phone them).
So don't include the income, and thus no tax.
If you absolutely feel the need to report it, then yes include only whatever wages that you received in may (not the pay you got for the work you did in may), and then prorate the final US, final state, medicare and SS tax you paid for the year, and attach W-2 and attach 1040, and attach an explanatory note to your departure T1
(get the point that it is not needed to report this incopme to CRA?)
<i>nelsona non grata</i>
So don't include the income, and thus no tax.
If you absolutely feel the need to report it, then yes include only whatever wages that you received in may (not the pay you got for the work you did in may), and then prorate the final US, final state, medicare and SS tax you paid for the year, and attach W-2 and attach 1040, and attach an explanatory note to your departure T1
(get the point that it is not needed to report this incopme to CRA?)
<i>nelsona non grata</i>
Rene,
you stated earlier in this thread
<div align="left"><i>So, our situation was slightly different than yours, but we made the same treaty position claim that you will need to make on form 8833:
Article XXV.2 of the U.S. Canada tax treaty (the non-discrimination clause) makes U.S. non-resident Canadians subject to no worse requirements in the U.S. than a U.S. non-resident of another country with which the U.S. has a tax treaty with a non-discrimination clause, i.e. Germany. Germany has a tax treaty with the U.S. that says a German national (note that U.S. tax residency is not necessary) can not be subject to more onerous requirements (i.e. the SPT) than a U.S. citizen in similar circumstances (U.S.-Germany treaty Article 24.1). So, you claim that a Canadian can not be treated any worse than a German, who can be treated as a U.S. citizen.</i></div id="left">
does your comment apply to my case? I meet the 183 days SPT test and meet f2555 330 dsays Physical Presence Test. what's the use of "non-discrimination" in my case?
Nelson:
you stated in previous thread
<div align="left"><i>You would have to double-check about FEIE in such cases, as you are, on the one hand, claiming to be a tax resident in US for full year, and on the other hand claiming to have a tax home elsewhere for FEIE. I seem to recall that as being the hiccup in the process (ie. making simultaneous elections that disagree with each other).
A citizen doesn't get to make such election about full-year, so their chioce to FEIE is made all by itself and is not contradictory.
THAT is where the non-discrim provisions have to be used, I believe, and they are not straightforward.</i></div id="left">
has the conclusion been made?
you stated earlier in this thread
<div align="left"><i>So, our situation was slightly different than yours, but we made the same treaty position claim that you will need to make on form 8833:
Article XXV.2 of the U.S. Canada tax treaty (the non-discrimination clause) makes U.S. non-resident Canadians subject to no worse requirements in the U.S. than a U.S. non-resident of another country with which the U.S. has a tax treaty with a non-discrimination clause, i.e. Germany. Germany has a tax treaty with the U.S. that says a German national (note that U.S. tax residency is not necessary) can not be subject to more onerous requirements (i.e. the SPT) than a U.S. citizen in similar circumstances (U.S.-Germany treaty Article 24.1). So, you claim that a Canadian can not be treated any worse than a German, who can be treated as a U.S. citizen.</i></div id="left">
does your comment apply to my case? I meet the 183 days SPT test and meet f2555 330 dsays Physical Presence Test. what's the use of "non-discrimination" in my case?
Nelson:
you stated in previous thread
<div align="left"><i>You would have to double-check about FEIE in such cases, as you are, on the one hand, claiming to be a tax resident in US for full year, and on the other hand claiming to have a tax home elsewhere for FEIE. I seem to recall that as being the hiccup in the process (ie. making simultaneous elections that disagree with each other).
A citizen doesn't get to make such election about full-year, so their chioce to FEIE is made all by itself and is not contradictory.
THAT is where the non-discrim provisions have to be used, I believe, and they are not straightforward.</i></div id="left">
has the conclusion been made?
saw Rene's other threads talking about "file extension" and 150 + 180 days describtion, should I wait until May 31?? to file my us tax? In August 2003 I spent 5 days in US, and in April 2004 I was in US for just one day(interview), so from 05/01/03 to 05/01/04, I spend 359 days in Canada (365-5-1). I think I should take one day off the FEIE limit calculation (120/360 * $80000 = 29333), other than that, should I concern about the date to file in US?
Don't read too much of rhollan's situation, most of it doesn't apply to you.
You don't need an extension to meet the FEIE criteria, because that was LAST YEAR. You would only file extension, and wait to file, if you left US and subsequently wanted to FEIE (which you can only do after 330+ days out of US).
And you met SPT in 2004, so you don't need to use days in 2005 to meet that standard.
All your 2004 Cdn income is FEIE. Forget splitting it up (or counting days), that was rhollan's exercise to get 2003 moving expenses. Your tax home was foreign every day until may 01 2004, period.
You can file anytime you want.
<i>nelsona non grata</i>
You don't need an extension to meet the FEIE criteria, because that was LAST YEAR. You would only file extension, and wait to file, if you left US and subsequently wanted to FEIE (which you can only do after 330+ days out of US).
And you met SPT in 2004, so you don't need to use days in 2005 to meet that standard.
All your 2004 Cdn income is FEIE. Forget splitting it up (or counting days), that was rhollan's exercise to get 2003 moving expenses. Your tax home was foreign every day until may 01 2004, period.
You can file anytime you want.
<i>nelsona non grata</i>