US resident - Beneficiary of a Canadian estate

[OferT]

A US resident is beneficiary of a Canadian estate - Estate income was allocated to the US beneficiary (T3/NR4). On his or her US return, should he report the income ot the distribution (if any)? The trust earned rental income - should the income reported in the US be as such (rental)? should the income be reported on line 17 of the 1140?

Other US filing requirements?

Sorry for the amount of questions :cry: but any help will be greatly appreciated

[OferT]

and based on my finding, it is the distributions from the Canadian estate to a US resident that are taxed in the US, can someone confirm?

Assuming the above is correct, If income was allocated to a US beneficiary, taxes withheld in Canada, can I choose to tax it in the US even if no distributions were made?

Again, any help will be greatly appreciated

[JGCA]

Distributions from a trust will be taxed in the hands of the beneficiary. The T3 will be given out, in case of US beneficiary NR4 withilding tax will apply rate will depend on the type of income but for the most part it will be non business income which you report in the US grossed up then claim the tax credit. It does not matter if the income was rental in the trust it get allocated out to teh beneficaries as NET non business income you report your share. If the trust does not elect to distribute the income then it will pay tax not the beneficiaries.

[OferT]

Thank you so much

What happened if in Canada the income was allocated to the beneficiaries but no distributions were made? (the estate deducted the allocation of income in order to arrive to taxable income and as such withheld taxes)

OT

[JGCA]

You CAN NOT deduct it on the T3 return for tax purposes unless you allocate the income to the beneficiaries, then you can chose when to distribute the income at a later time. The beneficiaries will be taxed when the allocation is made which can coincide with the distribution date or not.

[OferT]

Correct, the estate allocated the income to the beneficiaries (but no distributions were made).

My question was with respect to the US taxes. Is the beneficiary subject to US tax at the year of income allocation or at the time of distributions? (assuming the distribution was made in a later year)

Thank you!!

[JGCA]

The way the trust has to handle it is that it allocates the income to the beneficiary via the T3 or NR4 in order not to be taxed, it then theoretically distributed the income to you at the same time and mereley has not cut a chq yet ( in other words its been set up in a loan account owed to the beneficiary) this way we get to deduct it on our T3. For US purposes since the amount has been credited to your loan account you have received it and merely have lent it back to the trust, so in fact you are taxable on it and have to report it at the same in the US. When you are paid back your money you do not report it again.