This is regarding taxes for year 2005. I have not filed Canadian or U.S taxes taxes yet.
My wife and I lived and worked in Canada from Jan 01, 2005 to Feb 28, 2005.
Then From March 01, 2005 till now I have lived and worked in the U.S. on a TN visa. My wife and two kids lived in a third country and joined me in October 2005 and lived in the U.S.A since then.
My wife has not worked in the U.S in all of 2005.
I am thinking we can file 1040 Married filing jointly. I would imagine we must report our world income which is basically our salaries for the two months in Canada and then my salary in the U.S from March to Dec 2005.
Is there a way on 1040 I can use some kind of treaty and exlude our salary earned in Canada and pay taxes on U.S income only?
What is FEIE? Does it apply to me?
Can I also claim my kids as dependents and also can I claim child tax credit?
Thank you very much in advance!!!
Help needed - Part year Canadian, Part year U.S
Moderator: Mark T Serbinski CA CPA
More info...
Just to add some info, my wife and I worked and lived in Canada from May 01, 2000 to February 28, 2005.
I am reading up on 2555. It seems as though I might be able to exclude my Canadian wages prior to U.S entry. However, my wife I am not sure. Since she lived in a third country from March 01, 2005 till October 01, 2005, it seems she is not a bona fide resident of Canada??...
Please advice. Thanks.
I am reading up on 2555. It seems as though I might be able to exclude my Canadian wages prior to U.S entry. However, my wife I am not sure. Since she lived in a third country from March 01, 2005 till October 01, 2005, it seems she is not a bona fide resident of Canada??...
Please advice. Thanks.
Likely the best way for you to file is, as you suggested, married filing jointly for 2005, reporting ALL world income earned by both of you during 2005.
Now, as to FEIE (Form 2555), the WAGES you and your wife earned upto Feb 2005 are certainly eligible for FEIE. (2/12ths of the yearly limit for each). Any other Cdn-sourced income earned in 2005 would not 9since FEIE is for EARNED income, not cap gains, interst, etc), but should still give rise to some foreign tax credit opportunities on Form 1116. Do not be concerened that she was not a resident of canada after Feb 2005, since you aren't claiming wages frtom after that date anyways. both you and her were bona fide residents for a one year period ending Feb 2006, which is sufficient.
Any money earned by your spouse is in this mysterious 'third country' however, is unlikly to qualify for FEIE. If she made no income, then this is not a problem.
Now, as to FEIE (Form 2555), the WAGES you and your wife earned upto Feb 2005 are certainly eligible for FEIE. (2/12ths of the yearly limit for each). Any other Cdn-sourced income earned in 2005 would not 9since FEIE is for EARNED income, not cap gains, interst, etc), but should still give rise to some foreign tax credit opportunities on Form 1116. Do not be concerened that she was not a resident of canada after Feb 2005, since you aren't claiming wages frtom after that date anyways. both you and her were bona fide residents for a one year period ending Feb 2006, which is sufficient.
Any money earned by your spouse is in this mysterious 'third country' however, is unlikly to qualify for FEIE. If she made no income, then this is not a problem.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Correction
... both you and her were bona fide residents for a one year period ending Feb 2005
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
you can also claim the kids as dependants as well as claim the tax credit.
Now, the tax credit *could* be denied on the basis of them not having Social security numbers (you will be applying for ITINs for your family when you submit your 1040), but an experience on this board would suggest that they are not holding to the letter of the regs on this.
But certainly no harm in trying.
Now, the tax credit *could* be denied on the basis of them not having Social security numbers (you will be applying for ITINs for your family when you submit your 1040), but an experience on this board would suggest that they are not holding to the letter of the regs on this.
But certainly no harm in trying.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks Nelson
I forgot to mention an important detail. My wife was receiving maternity benefits from Canada even though she was living in a third country. So that income is from a Canadian source and also she did not pay tax on this to the third country. Can we use 2555 to exempt this on 1040?
We also did not do our Canadian taxes yet, because we were pretty sure we were going to get a refund and kind of neglected. It turned out that We did a mistake by not letting EI authorities know that my wife was non-resident after february 2005. So they did not cut the 25% tax from income from March 2005 till August 2005. This might mean she owes tax to Canada and possibly penalties for underpayment of tax.
We also realized there was some dividend income from mutual funds we hold in Canada that had distributions which were not taxed 25% NR rate. This was because we did not let the fund companies know in time our non-resident status and they did not deduct tax. I believe this will will also cause problems.
By not paying non-resident tax and/or underpaying tax, is my wife and I in a bad situation with Revenue Canada? What kind of penalties do they normally impose?
My wife will owe about $1500 and I will be getting a refund because I have an RRSP contribution I made in 2005 February before I left Canada.
I am very grateful to you for hemping me with answers!
I forgot to mention an important detail. My wife was receiving maternity benefits from Canada even though she was living in a third country. So that income is from a Canadian source and also she did not pay tax on this to the third country. Can we use 2555 to exempt this on 1040?
We also did not do our Canadian taxes yet, because we were pretty sure we were going to get a refund and kind of neglected. It turned out that We did a mistake by not letting EI authorities know that my wife was non-resident after february 2005. So they did not cut the 25% tax from income from March 2005 till August 2005. This might mean she owes tax to Canada and possibly penalties for underpayment of tax.
We also realized there was some dividend income from mutual funds we hold in Canada that had distributions which were not taxed 25% NR rate. This was because we did not let the fund companies know in time our non-resident status and they did not deduct tax. I believe this will will also cause problems.
By not paying non-resident tax and/or underpaying tax, is my wife and I in a bad situation with Revenue Canada? What kind of penalties do they normally impose?
My wife will owe about $1500 and I will be getting a refund because I have an RRSP contribution I made in 2005 February before I left Canada.
I am very grateful to you for hemping me with answers!
Unemployment or mat leave is not 'earned income' eligible for exclusion anyways, so that doesn't enter the picture.
I guess you did not read the "Emigrants" guide from CRA when leaving canada.
There are special rules for doing your 2005 departure return that you have to follow, be sure you do this now; better late than never. you need to advise anyone that pays you that you are non-resident (bank, broker, RRSP manager, etc). ESPECIALLY the government when they are paying EI.
Normally, She would have been able to add the mat leave to her 2005 return and calcualte the tax as normal (this is known as a 217 RETURN). It would have been unlikley that she will owe 25% tax on that income. look at info on 217 return from CRA. This would have been due on June 30th. Now she has missed this and must pay the 25% flat tax.
If she owes tax she will be assessed interst and a penalty. Whatever her tax (not interst, nor penalty) can be used on 1116 for IRS.
She will stioll probably end up paying quite a bit of tax on this income.
I guess you did not read the "Emigrants" guide from CRA when leaving canada.
There are special rules for doing your 2005 departure return that you have to follow, be sure you do this now; better late than never. you need to advise anyone that pays you that you are non-resident (bank, broker, RRSP manager, etc). ESPECIALLY the government when they are paying EI.
Normally, She would have been able to add the mat leave to her 2005 return and calcualte the tax as normal (this is known as a 217 RETURN). It would have been unlikley that she will owe 25% tax on that income. look at info on 217 return from CRA. This would have been due on June 30th. Now she has missed this and must pay the 25% flat tax.
If she owes tax she will be assessed interst and a penalty. Whatever her tax (not interst, nor penalty) can be used on 1116 for IRS.
She will stioll probably end up paying quite a bit of tax on this income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
By the way, the manner in which she should report and pay tax on the mat benefits is by separate LETTER, not by including on her return.
same for any dividend tax that you owe.
You do not report income which should have been taxed at a flat rate, on your 2005 return.
same for any dividend tax that you owe.
You do not report income which should have been taxed at a flat rate, on your 2005 return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Amended 1040 with 1116
Since we have not file Canadian taxes yet, I do not know how much tax credit to indicate on 1116. I plan on filing U.S taxes in the next few days.
This will really stink because I would pay several thousand dollars to IRS upfront and hope to recover through 1116 down the road.
Can I file 1116 along with my 1040 NOW ITSELF? I can calculate how much tax we will be paying CRA and use these numbers to fill out 1116. Or is it required that I wait till I receive my return from CRA?
Do I need to include any papers with 1040 other than the W-2, 2555 and 1116?
Are there any Treaty related forms I need to file along with the above?
Do I need to include Canadian T4 and Canadian tax return? How does the IRS trust me when I claim deductions/credits using 2555 and 1116?
Nelsona, I feel that I owe you for the help you have given me. If we ever meet the bar tab is on me for sure.
This will really stink because I would pay several thousand dollars to IRS upfront and hope to recover through 1116 down the road.
Can I file 1116 along with my 1040 NOW ITSELF? I can calculate how much tax we will be paying CRA and use these numbers to fill out 1116. Or is it required that I wait till I receive my return from CRA?
Do I need to include any papers with 1040 other than the W-2, 2555 and 1116?
Are there any Treaty related forms I need to file along with the above?
Do I need to include Canadian T4 and Canadian tax return? How does the IRS trust me when I claim deductions/credits using 2555 and 1116?
Nelsona, I feel that I owe you for the help you have given me. If we ever meet the bar tab is on me for sure.
Consequence of missing June 30 date for 217 return
One more thing...
What did I miss by not meeting the June 30 date?
Using 1116, if I can get credit on 1040 for all the tax I paid CRA, then I am even right? Am I missing something here? Thanks.
What did I miss by not meeting the June 30 date?
Using 1116, if I can get credit on 1040 for all the tax I paid CRA, then I am even right? Am I missing something here? Thanks.
Even more confused...frustrated as well
As I begin to think after reading publication 519 page 10...
My wife evn though she came to the USA on October 02, 2005,
She did not live for 31 days in a row. This will make her non-resident alien. But she can make a choice to file as a residen alien because I am a resident alien. But what concerns me is the wording
"If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire year. Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country"
I read elsewhere on Grasmick's website "Using 2555 to exclude pre-arrival income on your 1040 is problematic, as it involves using the non-discrimination clause of not only the US-Canada treaty but also relies on the non-discrimination clause of a SECOND treaty (most notably US-Germany)."
Having said this, can I still use successfully 2555 (and 1116) even when pub 519 page 10 "Non resident Spouse Treated as Resident" choice is made?
My wife evn though she came to the USA on October 02, 2005,
She did not live for 31 days in a row. This will make her non-resident alien. But she can make a choice to file as a residen alien because I am a resident alien. But what concerns me is the wording
"If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire year. Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country"
I read elsewhere on Grasmick's website "Using 2555 to exclude pre-arrival income on your 1040 is problematic, as it involves using the non-discrimination clause of not only the US-Canada treaty but also relies on the non-discrimination clause of a SECOND treaty (most notably US-Germany)."
Having said this, can I still use successfully 2555 (and 1116) even when pub 519 page 10 "Non resident Spouse Treated as Resident" choice is made?
You can file 1116 without having filed your Cdn return. You should be pretty certain of your numbers though.
The reason that you should have reduced your Cdn tax with 217 is that, as you will find, the 1116 rules make it almost impossible to recoup more than about 15% tax on foreign income, since it only allows you to credit at your EFFECTIVE taxrate, while your foreign income is really taxed at your marginal rate.
You watch, you will have a lot of unused Cdn tax leftover on all your1116's, for use in another year, but it wil be useless to you.
As to your election to treat your wife as a resident for teh full year, you could do this without her ever being in US.
You aren't using the treaty for 1116, and as for 2555, while I have in thepast recommended thetreaty expalnation (and it has been accepted), mst don't bother, and rely on non-discrimination if necessary -- whixcch it usaually isn't.
File as if you were US citizens returning from living 5 years Canada -- which would be 1040 with 2555 excluding Cdn wages and 1116 on any other Cdn taxes.
The reason that you should have reduced your Cdn tax with 217 is that, as you will find, the 1116 rules make it almost impossible to recoup more than about 15% tax on foreign income, since it only allows you to credit at your EFFECTIVE taxrate, while your foreign income is really taxed at your marginal rate.
You watch, you will have a lot of unused Cdn tax leftover on all your1116's, for use in another year, but it wil be useless to you.
As to your election to treat your wife as a resident for teh full year, you could do this without her ever being in US.
You aren't using the treaty for 1116, and as for 2555, while I have in thepast recommended thetreaty expalnation (and it has been accepted), mst don't bother, and rely on non-discrimination if necessary -- whixcch it usaually isn't.
File as if you were US citizens returning from living 5 years Canada -- which would be 1040 with 2555 excluding Cdn wages and 1116 on any other Cdn taxes.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Are you suggesting no 8833 required?
Nelsona, First of all I can not thank you enough for all the help.
You said "...rely on non-discrimination if necessary". I guess you are referring to someone filing 8833 and using non-discrimination. Could you give an example when it is "necessary" for someone to do this? I am trying understand better why it is NOT necessary to file 8833 in my case. I would have imagined IRS would want to know how someone in my situation came up with the tax calculations. If I do not invoke treaty IRS has no way to know that I am a Canadian citizen who is entitled to be treated like a U.S citizen in this situation.
Thanks.
You said "...rely on non-discrimination if necessary". I guess you are referring to someone filing 8833 and using non-discrimination. Could you give an example when it is "necessary" for someone to do this? I am trying understand better why it is NOT necessary to file 8833 in my case. I would have imagined IRS would want to know how someone in my situation came up with the tax calculations. If I do not invoke treaty IRS has no way to know that I am a Canadian citizen who is entitled to be treated like a U.S citizen in this situation.
Thanks.
file 8833
Which articles in the treaty does one avail to file as U.S residents?
The reason I ask is...
In my case, I plan on claiming child tax credit for my two kids...the requirement for this is the child be " Was a U.S. citizen, a U.S. national, or a resident of the United States...". By taking Treaty position, I think I am eligible for child tax credit. If "resident" means living for 183 days or more, then I am not eligible for Child Tax credit for 2005. But "electing" to be resident SHOULD make the children residents as well...
BUT...
See http://forums.serbinski.com/viewtopic.php?t=1549 that someone on this forum applied for Child Tax credit and subsequently apparently received the credit. See http://forums.serbinski.com/viewtopic.php?t=1623
I think I should take treaty position and "elect" to be U.S residents. Could you please tell me what to write on 8833? Like article # and some explanantion??
Thanks Nelsona.
The reason I ask is...
In my case, I plan on claiming child tax credit for my two kids...the requirement for this is the child be " Was a U.S. citizen, a U.S. national, or a resident of the United States...". By taking Treaty position, I think I am eligible for child tax credit. If "resident" means living for 183 days or more, then I am not eligible for Child Tax credit for 2005. But "electing" to be resident SHOULD make the children residents as well...
BUT...
See http://forums.serbinski.com/viewtopic.php?t=1549 that someone on this forum applied for Child Tax credit and subsequently apparently received the credit. See http://forums.serbinski.com/viewtopic.php?t=1623
I think I should take treaty position and "elect" to be U.S residents. Could you please tell me what to write on 8833? Like article # and some explanantion??
Thanks Nelsona.