US Citizen / Canadian PR working in Canada

[zad886]

Hi All,

I am a US citizen and a Canadian resident working in Canada for a wholly owned subsidiary of a US company. Can someone help me figure out which forms I need and what I should do for next year’s tax return filing? I've tried doing my own returns for the past 2 years and always ended up owing money to CRA :( ...just wondering if I'm doing something wrong. I have always included my US interest income/dividends in my CDN tax return and claimed a foreign earned income credit in my US return (form 2555). Is this the right way to do it?

This year, I joined our company pension and stock purchase plan. I'm not sure how this will affect my taxes, both in Canada and the US. Will there be additional forms to use for these?

Here is a list of my current additional sources of income and accounts from each country:

<<USA>> [are all of these included in the 100k foreign property/income calculation? - form T1135]
-savings/CD
-stocks & mutual funds [with dividends]
-Roth IRA accounts [mutual funds and stocks with dividends/interest income]

<<Canada>>
-savings / GIC/Term deposits / TFSA
-RRSP [mutual fund with dividends / GICs]
-Company Pension Plan [with company matching]
-Employee Stock Purchase Plan [stock in US - discounted purchase]

Any help is much appreciated. :)

[nelsona]

You should be using Form 1116 either instaed of 2555 or in conjunction with 2555.

But, in general, you should be reporting all your income from all sources on both returns, and then taking exemption credits on your US return. You must reprt any TFSA incoem on your 1040 it is not protedted in US.

The goal should be to pay no tax on your US return, as Cdn tax is usually a little higher that US rate.

If you are paying US tax on your 1040, you are probably forgetting or misapplying a deduction or credit.

By the way only your Cdn wages are eligible for the 2555 exclusion.

[bruce]

"The goal should be to pay no tax on your US return, as Cdn tax is usually a little higher that US rate. "

Wouldn't that be difficult given that he has US stock & MF dividends? As US-sourced income, any US tax on this portion of income would need to be recovered with FTCs on his Canadian return, right? (It still results in no double tax despite owing some taxes to the US.)

[nelsona]

One needs to apply the re-sourcing technique mentionned in 'otto's' thread.

I cannot forsee any situation, other than if one has US real estate, that a US citizen living in Canada would have to pay US tax.

[bruce]

Yes, I read "Otto's thread" and that's where I got the idea that tax would be owed to the IRS on US-sourced dividends.

In your post on March 30, 2009 @ 15:17 you gave "cfn2007" an example where he would have to pay ~$102 to the IRS as a result of having US-sourced dividends. How is this any different?

[nelsona]

Sorry, since we were talking about 0% treaty interst rate, I got carried away.
I meant to say, I don't envision any scenario where a US citizen in Canada would have to pay any more than the TREATY RATE in US tax on any income.

Sorry for the confusion. Since canada will always grant a foreign tax credit upto the treaty rate, its would be expected that -- at most -- that much tax would be owing in US.

[nelsona]

So US dividends would engender US tax. But non-real estste cpa gains would not, by re-sourcing.

[nelsona]

... one other thing that would give rise US tax is selling investments held before moving to canada, where the cost basis for US is much lower than the deemed cost determined for Cdn purposes when moving TO canada.

[bruce]

Just for giggles, I'll give you another example. If a USC is an early retiree living in Canada and has a substantial portion of their income coming from Canadian dividends.

For example, if you make $30k of income of which $15k is from interest and $15k is from Canadian dividends, you will owe more tax to the US than to Canada.

[zad886]

Thanks for all your replies...wow, there's been a lot going on in this thread...a lot of the terms are way over my head... :lol:

[quote="nelsona"]You should be using Form 1116 either instaed of 2555 or in conjunction with 2555.[/quote]
how do I use Form 1116? what should be reported on this form?

[quote]But, in general, you should be reporting all your income from all sources on both returns, and then taking exemption credits on your US return. You must reprt any TFSA incoem on your 1040 it is not protedted in US.[/quote]
Yes I do. Shouldn't there be a credit on my Canadian tax return for my US source interest income/dividend based on the tax treaty? 15%? I'm not sure about this and if there is, I don't know how and where to apply it.

as for my US source income, are all of them included in the 100k calculation of foreign property held(line 266) or is my ROTH IRA excluded from it? please advise.

do i need to amend my return if on Form 2555, I have always checked "A FOREIGN AFFILIATE OF A US COMPANY" when my employer is a "WHOLLY OWNED SUBSIDIARY OF A US COMPANY"? does it make any difference?

are there any additional forms i need to use to report my company's contribution to my pension and the stock purchase plan (which is in USD and with a 15% discount0?

thanks for all your help...much appreciated! :)

[nelsona]

Read the instructions forForm 1116. One typically files more than one per year, for various incomes.

Canada gives no tax credit for US-sourced investment income, except for upto 15% for dividends.

[nelsona]

... and real estate capital gains tax.

[zad886]

[quote="nelsona"]
Canada gives no tax credit for US-sourced investment income, except for upto 15% for dividends.[/quote]
oh, so I should have claimed that credit for my US dividends, is this correct? which line in the Canadian tax form does it go to?

I read the instructions on Form 1116, and the way I understand it is that I use this form if I end up having to pay US taxes, is this right?

[nelsona]

I try to to answer mechanical questions. You tax software can help you.

You use form 1116 to reduce your US tax owing on foreign income by taking credit for the foreign tax you paid on that income.