order of filing

lanman2000 · Post by **lanman2000** » Tue Feb 02, 2010 3:08 pm

I am dual US/Canadian Citizen, my wife is US Citizen with Canada work permit. We moved to Canada in the middle of 2009.

I received some US source income after we moved to Canada which is taxable in both countries I presume.

We both have regular salaried earnings from US earlier in the year and CAN later in the year.

My question is around the order of filing. I understand that I need to file the US source income with the IRS first and the CAN source income with the CRA first but since they are all intermingled how do I determine the back and forth tax credits for foreign taxes paid. Its very confusing. It seems like an endless loop. Am I missing something simple or is it really this insanely complicated?

nelsona · Post by **nelsona** » Tue Feb 02, 2010 3:12 pm

You do each return with no accounting for foreign tax credits.
Then you complete your Cdn one accounting for any allowed US tax from the preliminary US return.
Then you do you complete your US one, using the the completed Cdn return. No other iterations.

lanman2000 · Post by **lanman2000** » Tue Feb 02, 2010 3:14 pm

THANK YOU for the very quick reply. I may give it a shot and if I need help i'll contact your office. I'm just down the street in Richmond Hill. :)

lanman2000 · Post by **lanman2000** » Tue Feb 02, 2010 3:17 pm

Woops one more quick question. What about my California state return? Where does it fit into that order?

lanman2000 · Post by **lanman2000** » Tue Feb 02, 2010 7:12 pm

Two more questions:

1) Do we continue to file jointly in the US or do we have to file separately now since Canada only allows the separate file?
2) When claiming US foreign tax credits on my Canadian return how do I handle US source income earned while residing in canada? That is lets say for example I have 100,000 of US income on my US tax return and i figure out the tax on that but lets say 10,000 of that was earned while living in Canada. I assume I carryover the US tax paid on JUST that 10,000 since the 10,000 is all i'm going to declare on my Canadian return since the other 90,000 was earned while not residing in Canada and thus is NOT taxable in Canada . For this I assume I should just do a calculation like :

US tax carried over to Canadian return = Effective tax rate X 10,000

or like:

10,000/100,000 is 10% so I bring over 10% of the total us tax from the us return over to the canadian return

right?? i hope my question makes sense. Its hard to articulate....

bruce · Post by **bruce** » Wed Feb 03, 2010 1:02 am

"You do each return with no accounting for foreign tax credits.
Then you complete your Cdn one accounting for any allowed US tax from the preliminary US return.
Then you do you complete your US one, using the the completed Cdn return. No other iterations."

At which stage do you use the 2555 in the calculations? Is this used in the first pass or only when you complete the final US return?

nelsona · Post by **nelsona** » Wed Feb 03, 2010 1:51 pm

2555 would be on the first pass. You are excluding it from the foreign tax credit process.

lanman2000 · Post by **lanman2000** » Wed Feb 03, 2010 8:05 pm

hi nelsona,

did you see my couple follow on questions? They are 2 posts ago in this thread.

Thanks in advance for your help.

nelsona · Post by **nelsona** » Wed Feb 03, 2010 9:55 pm

Yes, I did.

lanman2000 · Post by **lanman2000** » Thu Feb 04, 2010 8:46 am

Do you have an answer for them?

lanman2000 · Post by **lanman2000** » Fri Feb 19, 2010 6:25 pm

[quote="nelsona"]You do each return with no accounting for foreign tax credits.
Then you complete your Cdn one accounting for any allowed US tax from the preliminary US return.
Then you do you complete your US one, using the the completed Cdn return. No other iterations.[/quote]

Does that first pass apply to foreign income too? That is I do each return with no accounting for foreign tax credits and no inclusion of foreign income (no canadian income on US return and no US income on canadian return)?

richarooca · Post by **richarooca** » Sat Feb 20, 2010 6:01 pm

After 1st pass, what value for tax paid do you use in the other country's tax credits? I assume for US return you use tax amount from Canada's line 428, and for Canada return you use tax computed on 1040's line 46.

For 1116, can I have General (for employment), Passive (for Canadian passive income), AND an 1116 for resource by treaty (for my US dividends and interest that are taxed by Canada). Can I also put my California rental's net income on the 1116 resource by treaty, since I'm taxed on it in Canada?

Lastly, if I essentially reduce my US tax liability to 0 through 1116 credits in pass 2, can I still reduce my Canadian liability on US investments with a foreign tax credit? E.G. is the Canadian side of the credit based on the tax computed in pass 1 (1040 line 46), or my final what I end up paying to US, e.g line 60 (total tax).

Thanks for all the information on this forum!!