Foreign Tax Credit?

[syed]

Hi,
Am I eligible for Foreign Tax Credit in Canadian Return?

The scenario:
I moved to the US from Canada in March 2006 and I filed the Canadian return declaring all my US income up until March 2006 claiming foreign tax credit for the taxes I paid in the US. In my notice of Assessment no credit is given for this and I owe that amount to CRA. I was resident of Ontario until I moved.

Thanks for the response.

[nelsona]

If 'no credit' was given, I have to assume that you did not provide the requisite proof that (a) the income was foreign and (b) that you paid foreign tax on it. This is usually accomplished by submitting both your 1040 and your W2 as proof.


But, generally, if you reported foreign income, you are entitled to claim the portion of foreign tax that was paid on that income, subject to the limits set out in the FTC lines on the return.

[syed]

Since W-2 does not show a breakdown of taxes for the portion of the year (Jan-Mar), I sent a copy of the Pay check upto that period that clearly shows all the taxes paid.

I believe the anwer is YES to my previous question. Should I call CRA and discuss? I can provide the copy of the W-2 if requested. Meanwhile, do I need to pay the owed amount first while the dispute is underway?

Thanks!

-Syed

[nelsona]

Your method of determining tax was incorrect. Your US tax on the portion you reported in Canada is only determined at year end, and is an average.

If for example, you made $100K in wages 2006 (and nothing else), and reported $25K to CRA for the time that you were in Canada. Then your claim could only be 15% of the final IRS tax you actaully owed, 15% of the state tax you actually owed, and 25% of the FICA you paid for the year.

So you need to submit your fianl return (to prove taxes paid and owed) and your W-2, Your paystub was meaningless, other than to show how much INCOME you made up til departure.

So, submit the 1040 (you did not say) and w-2. I would not pay first, since it is clear that you merely failed to include proper receipt.

I'm surprised your assessment didn't explain why they denied your FTC.

[nelsona]

Typo, the numbers should all be 25%!!

[syed]

Thanks for the valuable advise Nelsona!

I did discuss the issue with CRA. The CRA rep. herself was surprised that there was no credit given and advised me to file T1-ADJ. You were right about W-2 and 1040.

I got another question. In order to claim Ontario provincial credits for 2006, should I have been resident of that province on Dec 31, 2006.

[nelsona]

No. As a departing resident (an Emigrant) your province of residence on the last day you were resident determines what province you file for. If you left Ontario for the US, then you are entitled to certain Ontario credits. They will probably be reduced, like your fed credits were, based on the ammount of days you were considered resident.

After 2006 however, you will be non-resident, and will not file a provincial return of any kind (probably not file any return period) unlerss you earn wages while working in that province.