Negative income tax for 2009 on 1040

Nishant · Post by **Nishant** » Sat Sep 12, 2009 7:26 am

To bring down my income to meet first time home owner criteria, I am making max allowable contributions to 401K.

Considering $ 8000 in refund and credit for income tax paid to Canada before declaring non resident, I anticipate I may have negative tax liability for 2009 when I file 1040.

Is such amount carried forward for 2010?

nelsona · Post by **nelsona** » Sat Sep 12, 2009 3:18 pm

Don't forgat that your Cdn tax credit can't be used to lower the US tax on your US income, only the US tax on your Cdn income.

Genarally, Cdn tax is far more than you can use in US. It canb ecarried forward 10 years.

Do your 1116's with a tax program, and carefully identify your US and Cdn source income. You will see tha tyou cannot use much of your Cdn income tax on your 1116.

You do NOT get credit for any Cdn tax you paid on your US wages. Only Canada can credit you for US tax.

Nishant · Post by **Nishant** » Sun Sep 13, 2009 2:08 pm

Not clear.
For first 6 months, I was deemed resident of Canada and would be paying taxes to Canada. Do I have pay tax to US as well for this period?

For next 6 months since I departed from Canada, I can understand tax paid to US.

Nishant · Post by **Nishant** » Sat Sep 19, 2009 7:50 pm

Hello Nelsona,
Can you please clarify.

1) If I have to pay tax to Canada on my 6 month income before becoming non resident, do I consider only US tax paid during that time as credit?

Thanks

nelsona · Post by **nelsona** » Sat Sep 19, 2009 8:02 pm

When did you begin working in US, and when did you leave canada?

Nishant · Post by **Nishant** » Sun Sep 20, 2009 7:49 am

As mentioned above, I started working from end 2008, my family moved to US on 27 Jun 09. We bought a house in US on 6/30 and leased canada house from July 09

nelsona · Post by **nelsona** » Sun Sep 20, 2009 8:41 am

Canada:
Your US income is to be reported on your Cdn departure return, upto Jun27. Follow the CRA emigrants guide for this, as well as any Cdn income you had upto then (plus deemd diposition, etc).

Your rental income will be reported on a special 216 return.

US:

You will report ALL your couples income for entire year on your US return (1040), including CDN income.

Foreign tax credits:
Using the numbers from the 2 'draft' returns you haave just prepared,

On your US return, you will exclude any Cdn wages your wife had using Form 2555. Any other Cdn tax on any other Cdn income you report will be credited on several Form 1116s. You prorate the Cdn tax based on the amont of income each category had.

On your Cdn return, US tax paid on the US income you reported on your departure return, can be credited. Aagin, prorated based on the ammount of US incoem you repot vs. US tax you pay.

Nishant · Post by **Nishant** » Wed Sep 23, 2009 8:25 pm

Do I need to buy RRSP to get tax advantage for 6 month period while deemed resident of Canada or I can show my 401K contributions in place of RRSP?

Also how do I show 401K company match in my Canada return?

nelsona · Post by **nelsona** » Wed Sep 23, 2009 8:42 pm

401(k) is now a deduction. Company match is not reported, since it is not income to you.

Nishant · Post by **Nishant** » Sun Sep 27, 2009 8:34 am

Nelsona,
Thanks,

Since 401K is 6 %, RRSP upper limit is 18 % and since I now cannot go back to increase my 401K contribution for first 6 months of canadian deemed residence period, can I
1) Buy RRSP to max allowable for balance amount with Canadian bank and invest in either mutual fund or GIC?
2) What other options do I have to reduce taxes?

nelsona · Post by **nelsona** » Sun Sep 27, 2009 11:28 am

I would question that your 401(k) limit is 6%. It is actually $15,500 for 2009.

Remember, for RRSP to be eligible for US tax deduction it MUST be contributed through your Cdn employer's plan. Contributing on your own will only reduce your Cdn tax.

nelsona · Post by **nelsona** » Sun Sep 27, 2009 11:30 am

Oh, I think I see where yo uare going.... yaeh you can contrbute all you want to your RRSP, so that the 401(k) portion from first half of year plus your RRSP won't be more than your RRSP contribution limit (as shown on your 2006 tax year assessment)

Nishant · Post by **Nishant** » Mon Sep 28, 2009 7:03 pm

Hello Nelsona,

Another query to estimate my RRSP contribution. I had received large amounts on joining US employment under two headings
a) Moving allowance
b) Moving expense adjustment

Income tax through pay has already been deducted for both these . Will these two amounts have to be included as income during deemed residence period income?

Does CRA allow any amount as moving allowance exemption from any of above two amounts?

Thanks

nelsona · Post by **nelsona** » Tue Sep 29, 2009 7:06 am

If you recieved it before becomeing US resident, then yes, it is included in income.

Remember, you can only contribute RRSP upto the limit on your assessment minus your 401(k), so this years income will have no bearing on your RRSP limit.

Nishant · Post by **Nishant** » Tue Sep 29, 2009 8:29 pm

First 6 months income while I was deemed resident of Canada plus moving allowance minus 401K contributions during first 6 months will decide my RRSP contribution if I want to avoid paying tax difference to CRA.

RRSP limit is 18 % of salary or C$ 21,000 whichever is less.

Using above formula, when I take RRSP and invest in say GIC, how do I bring it back to US or invest in US rather than continuing in Canada?