Using a free tax software that is pretty good and certified by CRA for NETFile and using the H&R block online T1 prep account, both do not substract the 401(k) amount from the "Net Foreign non-business income" that is 99.9% employment income and just $10 in foreign bank interest. Reading Note 2:
- a deduction you claimed under subsections 20(11) or 20(12) and under subsection 4(3) of the Act relating to the foreign income, including any deduction claimed for:
– your contributions to a foreign pension plan or a social security arrangement
The tax rate for the "Net Foreign non-business income" was 21%.
But I also have a pro T1 software from a global billion dollar revenue firm that's business is professional information, services, and software and one area is in tax and accounting. They do both Canada and USA personal and corporate tax software I know as I have used both before.
Their software substracts the 401(k) from the "Net Foreign non-business income" on T2209.
So now I got 2 different outcomes from 3 different software packages. The 2 that do not deduce the 401(k) allows a greater foreign tax credit deduction; hence, less taxes to pay in Canada.
Going to try another online T1 prep company and see what that states too.
Form T2209 and 401(k) Net income
Moderator: Mark T Serbinski CA CPA
Re: Form T2209 and 401(k) Net income
Example of data:
8 months (Jan-Aug) working in US and 4 months (Aug-Dec) working in Canada for USA employer.
Total foreign employment income = $100000
Total foreign investment income = $10
Total foreign taxes paid (including Federal Income Tax, Social Security Tax, Medicare Tax, investment income withholding and State Income Tax) = $26000
401(k) paid = $8000
Total Canadian self-employment = $5000
Total Canadian investment interest (bank paid all in December) = $10000
Net income reported on T1 line 15000 = $115010
Deductions for pension = $8080 (401(k) and for the self-employment)
Foreign income excluded under tax treaty is = $80008
Foreign taxes excluded under tax treaty is = $17333.33
So on T2209
Net Foreign non-business income = $20002 (not deducting 401(k) of $8000)
or
Net Foreign non-business income = $12002 (deducting 401(k))
Net income = $35002
8 months (Jan-Aug) working in US and 4 months (Aug-Dec) working in Canada for USA employer.
Total foreign employment income = $100000
Total foreign investment income = $10
Total foreign taxes paid (including Federal Income Tax, Social Security Tax, Medicare Tax, investment income withholding and State Income Tax) = $26000
401(k) paid = $8000
Total Canadian self-employment = $5000
Total Canadian investment interest (bank paid all in December) = $10000
Net income reported on T1 line 15000 = $115010
Deductions for pension = $8080 (401(k) and for the self-employment)
Foreign income excluded under tax treaty is = $80008
Foreign taxes excluded under tax treaty is = $17333.33
So on T2209
Net Foreign non-business income = $20002 (not deducting 401(k) of $8000)
or
Net Foreign non-business income = $12002 (deducting 401(k))
Net income = $35002
Re: Form T2209 and 401(k) Net income
Example of data:
8 months (Jan-Aug) working in US and 4 months (Aug-Dec) working in Canada for USA employer.
Total foreign employment income = $100000
Total foreign investment income = $10
Total foreign taxes paid (including Federal Income Tax, Social Security Tax, Medicare Tax, investment income withholding and State Income Tax) = $26000
401(k) paid = $8000
Total Canadian self-employment = $5000
Total Canadian investment interest (bank paid all in December) = $10000
Net income reported on T1 line 15000 = $115010
Deductions for pension = $8080 (401(k) and for the self-employment)
Foreign income excluded under tax treaty is = $80008
Foreign taxes excluded under tax treaty is = $17333.33
So on T2209
Net Foreign non-business income = $20002 (not deducting 401(k) of $8000)
or
Net Foreign non-business income = $12002 (deducting 401(k))
Net income = $35002
8 months (Jan-Aug) working in US and 4 months (Aug-Dec) working in Canada for USA employer.
Total foreign employment income = $100000
Total foreign investment income = $10
Total foreign taxes paid (including Federal Income Tax, Social Security Tax, Medicare Tax, investment income withholding and State Income Tax) = $26000
401(k) paid = $8000
Total Canadian self-employment = $5000
Total Canadian investment interest (bank paid all in December) = $10000
Net income reported on T1 line 15000 = $115010
Deductions for pension = $8080 (401(k) and for the self-employment)
Foreign income excluded under tax treaty is = $80008
Foreign taxes excluded under tax treaty is = $17333.33
So on T2209
Net Foreign non-business income = $20002 (not deducting 401(k) of $8000)
or
Net Foreign non-business income = $12002 (deducting 401(k))
Net income = $35002
Re: Form T2209 and 401(k) Net income
Sorry about the double post. For some reason it faulted and it posted twice.
So in the software on form RC267, part of the "Calculate your deduction", there is a place under line 51204 that states:
Calculation of your deduction for purposes of the foreign tax credit calculation
Canadian portion of the deduction: (you enter a value here lets call this AA)
Foreign portion of the deduction carried to Form T2209: (value is calculated here line 3 minus AA value entered)
So in the software on form RC267, part of the "Calculate your deduction", there is a place under line 51204 that states:
Calculation of your deduction for purposes of the foreign tax credit calculation
Canadian portion of the deduction: (you enter a value here lets call this AA)
Foreign portion of the deduction carried to Form T2209: (value is calculated here line 3 minus AA value entered)