filing under section 217

[SergeP]

I am a a US tax- resident. My income is mostly from SS and 401. CPP and RIF make a much smaller part of my income. As a non-resident of Canada my only tax obligation is a 15% tax on my RIF income (withheld automatically by the bank). CRA states that if I want to get a refund on a part of this tax, I have to file T1 under section 217.
For a try, I filled all the required forms (T1,Sch A, B and C) and found that according to this T1 return my canadian tax would be significantly larger that those 15% of RIF. This was mostly because this T1 return required to report my world income. Then the T1 calculated tax on this world income (I am at 20.5% bracket). FIC reduced the tax owning but not enough (my federal effective tax rate in US is about 8%). Do I understand this correctly that in my case it does not make any sense to file T1 under section 217? Or I am not filing T1 correctly?

[nelsona]

Correct. Besides you are not eligible to use FTC on the 217, since it is really only taxing the Cdn portion of your income.

This is normal. It is really only beneficial for those being withheld 25%, or for those earning only slightly more than the personal exemption.

Did you add in medical expenses, as these are eligible to be used on the 217 return. It might help a bit, but since you are only being taxed 15% on RIF and 0 on CPP, your situation was not a good candidate for 217.

You can use the 15% as an FTC on your US return using form 1116. If you cannot use all of it againt the US tax on your RIF, you can include the CPP as well, since it is Cdn-sourced

[SergeP]

Thank you for reminding me that filing under section 217 should result only in taxation of my income from Canadian sources. The federal tax is adjusted to this part of my income at the very end of the T1 form, after the Section 217 tax adjustment calculated in the Part 2 of Schedule C. My FTC in US covers only a part of this 15% Canadian tax ($400 vs $1100) even if I include CPP. Can I also include my interest from Canadian banks in FTC calculations?

[nelsona]

Re-read what I said. You will only be taxed on your Cdn income BUT it will be at a rate determined by your world income. Thus, as I said, you cannot use any US tax as a credit, and you are not going to save any money.

So forget 217. It was not meant for you.

[nelsona]

Sorry. I misread your question.

I question why there would be such a disparity on your 1116 between the 15% tax and the US tax determined on that form. What is your effective taxrate on your 1040?

The Cdn interest is considered PASSIVE income, not general income. Besides you have no Cdn tax to write against it.

[SergeP]

I think this disparity is because I pay my Canadian tax on the full amount of RIF but I report on my 1040 only a taxable portion of my RIF (~20%). Therefore the ratio of Canadian income to total income is very small. My effective federal tax rate (relative to the total income) is ~7.5%.
In your first reply you mentioned that I can include my CPP in the Canadian income when calculating FTC. But because I do not pay Canadian tax on CPP, it probably does not qualify for FTC.
What category of income should I use for RIF, lump-sum distributions?

[nelsona]

So, I'm guessing you misspoke when you said " My FTC in US covers only a part of this 15% Canadian tax", You must have meant that your 15% CDn tax is not fully used up when calculating FTC. This is normal. You can use what you can.

RIF income is general limit income, as is CPP.

While Canada does have rules against claiming foreign income that is not taxed in the other country. IRS doesn't have so strict a rule, You can incude CPP as foreign sourced, and you can include it is subsequent years in order to eat up the Cdn tax accrued this year in future years.

[SergeP]

You are absolutely correct about my FTC note. Thank you for your help.

[SergeP]

When using filing under section 217, should I, besides RIF, also include my CPP/OAS payments in my Canadian income? Per US/Canada tax treaty, the OAS/CPP is taxed only in the US for US residents (same as bank interest). Maybe I should include CPP/OAS only in my world income?

[SergeP]

When using filing under section 217, should I, besides RIF, also include my CPP/OAS payments in my Canadian income? Per US/Canada tax treaty, the OAS/CPP is taxed only in the US for US residents (same as bank interest). Maybe I should include CPP/OAS only in my world income?

[SergeP]

When using filing under section 217, should I, besides RIF, also include my CPP/OAS payments in my Canadian income? Per US/Canada tax treaty, the OAS/CPP is taxed only in the US for US residents (same as bank interest). Maybe I should include CPP/OAS only in my world income?