Allocating Canadian Taxes on Form 1116

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nielkfj
Posts: 27
Joined: Fri Apr 17, 2020 2:01 pm

Allocating Canadian Taxes on Form 1116

Post by nielkfj »

When Canadian taxes paid are related to more than income category on the 1116 forms, do you calculate the allocation of taxes using net income values in CA$ or US$?

Publication 514 (page 12) says:
https://www.irs.gov/pub/irs-pdf/p514.pdf
“You do this by multiplying the foreign income tax related to more than one category by a fraction. The numerator of the fraction is the net income taxed by the foreign country in a separate category. The denominator is the total net income.”

But it doesn’t say if the values should be the CA$ or US$ values.
adeboloj
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Joined: Fri Mar 24, 2017 10:50 am

Re: Allocating Canadian Taxes on Form 1116

Post by adeboloj »

Regardless of income category or say any income received, you put in the values of your gross income or taxes in US$ on the software.
For example, Taxact ask you this question for both currencies i.e. the foreign currency and the US currency on 1116 form.
So you need to make use of the annual exchange rate to convert the CA$ (wages or any income received) to US$ on 1040 when filling out the 1116 form. And you do the same for the gross wages/income for your Foreign Earned Compensation as well.
nelsona
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Re: Allocating Canadian Taxes on Form 1116

Post by nelsona »

Your taxes are prorated just like the income, except for cap gains and for dividends which have their own tax rates in Canada and must be accounted for.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nielkfj
Posts: 27
Joined: Fri Apr 17, 2020 2:01 pm

Re: Allocating Canadian Taxes on Form 1116

Post by nielkfj »

adeboloj wrote:
> Regardless of income category or say any income received, you put in the
> values of your gross income or taxes in US$ on the software.
> For example, Taxact ask you this question for both currencies i.e. the
> foreign currency and the US currency on 1116 form.
> So you need to make use of the annual exchange rate to convert the CA$
> (wages or any income received) to US$ on 1040 when filling out the 1116
> form. And you do the same for the gross wages/income for your Foreign
> Earned Compensation as well.

OK, thanks. After thinking about it I kinda figured all the values need to be in US$.

By the way, I don't have software right now. I'm making a spreadsheet to do some financial calculations which includes U.S. tax liability. I'm trying to calculate it as accurately as I can, but it's horribly complex, especially the foreign tax credit.
nielkfj
Posts: 27
Joined: Fri Apr 17, 2020 2:01 pm

Re: Allocating Canadian Taxes on Form 1116

Post by nielkfj »

nelsona wrote:
> Your taxes are prorated just like the income, except for cap gains and for
> dividends which have their own tax rates in Canada and must be accounted
> for.

By "prorated" do you mean allocated in the same proportions to the different income amounts?

If I understand you correctly for cap gains and dividends I need to use only the taxable amount, in other words the amount that ends up on line 26000 of the Canadian return, AND the values need to be in US$, before allocating the Canadian tax to the different income categories (i.e. different 1116 forms). Correct?

Canadian tax on cap gains and dividends are still lumped together on the same 1116 form for passive income, correct?
nelsona
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Re: Allocating Canadian Taxes on Form 1116

Post by nelsona »

Correct.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nielkfj
Posts: 27
Joined: Fri Apr 17, 2020 2:01 pm

Re: Allocating Canadian Taxes on Form 1116

Post by nielkfj »

nelsona wrote:
> Correct.

Great. Thanks for all the answers.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
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Re: Allocating Canadian Taxes on Form 1116

Post by nelsona »

I wouldn't worry muach about US taxes once you've paid the US tax on cap gains accrued before you left (once you sell those items). You won't be paying any tax in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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