Hello,
I am Canadian and now live in California with my wife and son (1.5 yo). I’ve been working here since 2011 on a TN visa. My wife and son were issued a TD visa in March 2012. They are now considered US resident aliens and non-residents of Canada. On my US tax return I must include her Canadian income which consists of a Universal Child Care benefit (UCCB) and her maternity leave benefits.
With regards to her Canadian tax return I had to consider the number of days she was a resident in Canada to get the correct amount of tax she should pay. Although living in the US she had still contributed to her RRSP, without reaching her 2012 contribution limit. To avoid owing something to the CRA we can claim an RRSP deduction, which lowers her taxed net income and nullifies the amount owed.
For the US return I can use form 1116 to claim a foreign tax credit. There are several ways I could fill form 1116 and I’m not certain which one is correct.
1 - I put her gross income on line 1a and report the amount of tax paid to Canada on line 8 (federal + provincial) as if she hasn’t used any RRSP deduction in Canada. This maxes out the credit.
2 - I put her gross income, use the RRSP deduction (to fill part II) and report the tax paid in Canada using the RRSP deduction. This option gives me the lowest credit.
3 - Put her gross income and the tax paid in Canada using her RRSP deduction. I don`t report the RRSP deduction on f1116.
If someone could help me with this, it would be greatly appreciated.
Thanks a lot in advance.
Greg
RRSP contribution and f1116
Moderator: Mark T Serbinski CA CPA
just to clarify, your wife' s deaprture date is march 2012. THAT is the only date that matters, not any other days after that for determining how much deduction she gets. She is an emigrant, just like you were for 2011.
I trust she is no longer collect uccb, since last march.
1 is correct. RRSP is not a tax and is not deductible of 1040 or 1116.
2 is wrong
3 is wrong
Rather than using 1116 for her wages,, why not use for 2555 and exclude her wages altogether.
I trust she is no longer collect uccb, since last march.
1 is correct. RRSP is not a tax and is not deductible of 1040 or 1116.
2 is wrong
3 is wrong
Rather than using 1116 for her wages,, why not use for 2555 and exclude her wages altogether.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks a lot for your reply. Yes my wife got her TD visa March 19th and regarding the presence test she is considered as a US resident for tax purpose. As for the UCCB she still receives it but I know we will have to pay it back since she left Canada. So I just considered an amount proportional to the number of days spent as a Canadian resident on the tax returns. I checked with the CRA and we don't have any penalty for that.
Ok so just to clarify even more : I can put the amount of tax pay to Canada in form 1116 AS if I don`t use any RRSP deduction in the Canadian tax report. Just to get the tax amount number she could pay in fact. She can afterward use the RRSP deduction in her Canadian Tax report to nullify the amount she owes. Right ?
As for the form 2555 I remember doing something for that but don`t think she qualified regarding some tests. What do you suggest ?
Ok so just to clarify even more : I can put the amount of tax pay to Canada in form 1116 AS if I don`t use any RRSP deduction in the Canadian tax report. Just to get the tax amount number she could pay in fact. She can afterward use the RRSP deduction in her Canadian Tax report to nullify the amount she owes. Right ?
As for the form 2555 I remember doing something for that but don`t think she qualified regarding some tests. What do you suggest ?
No, you can only use the actual tax you paid on your Cdn return, as calculated in the end, after all your deductions are applied. What I said earlier was that you report all her Cdn INCOME on the US return, without deducting any deductions including RRSP, since these are not deductions allowed on 1040.
As I said, you should be using form 2555 instead of form 1116. You will see that it works MUCH better.
As for uucb, you should report (on both Cdn and US returns) only the amount that you are legally allowed to keep (which would be the amount recieved before march 19), and return the rest to Cdn gov't.
As I said, you should be using form 2555 instead of form 1116. You will see that it works MUCH better.
As for uucb, you should report (on both Cdn and US returns) only the amount that you are legally allowed to keep (which would be the amount recieved before march 19), and return the rest to Cdn gov't.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
[quote]
No, you can only use the actual tax you paid on your Cdn return, as calculated in the end, after all your deductions are applied. What I said earlier was that you report all her Cdn INCOME on the US return, without deducting any deductions including RRSP, since these are not deductions allowed on 1040. [/quote]
Ok so this corresponds to the third case I mentioned in my first post :) It was not very clear probably. Using her RRSP deduction reduces the tax my wife has to pay to Canada. But then it reduces the US foreign tax credit and so increases the tax I pay here.
For the UCCB, that`s what I did. Thanks.
I`ll have a look again on the form 2555. Thanks for your advice.
No, you can only use the actual tax you paid on your Cdn return, as calculated in the end, after all your deductions are applied. What I said earlier was that you report all her Cdn INCOME on the US return, without deducting any deductions including RRSP, since these are not deductions allowed on 1040. [/quote]
Ok so this corresponds to the third case I mentioned in my first post :) It was not very clear probably. Using her RRSP deduction reduces the tax my wife has to pay to Canada. But then it reduces the US foreign tax credit and so increases the tax I pay here.
For the UCCB, that`s what I did. Thanks.
I`ll have a look again on the form 2555. Thanks for your advice.
I m back regarding the suggestion of using form 2555. To get the Foreign Earn Income Exclusion you have to meet at least one of two tests :
1 - Bona Fida Residence test
2 - Physical Presence test
The Physical Presence Test determines if you were physically present in an other country for at least 330 days in a 12 month period ending anywhere in 2012. You can choose apparently the period that works best for you.
Concerning our situation my wife, before having her TN visa, came for the first time in the US with a B2 visa (for tourist) on Nov 22th 2011. So even if I consider a 12 month period from January 1st 2011 to January 1st 2012. She does not meet the requirement for this test. If she came 6 days later she would have met the requirement :(
For the Bona Fida Residence Test, I m not sure I understand it correctly. From March 2011 to March 2012 she was considered as a Canadian resident for tax purpose. Does that suffice to meet the requirement ?
1 - Bona Fida Residence test
2 - Physical Presence test
The Physical Presence Test determines if you were physically present in an other country for at least 330 days in a 12 month period ending anywhere in 2012. You can choose apparently the period that works best for you.
Concerning our situation my wife, before having her TN visa, came for the first time in the US with a B2 visa (for tourist) on Nov 22th 2011. So even if I consider a 12 month period from January 1st 2011 to January 1st 2012. She does not meet the requirement for this test. If she came 6 days later she would have met the requirement :(
For the Bona Fida Residence Test, I m not sure I understand it correctly. From March 2011 to March 2012 she was considered as a Canadian resident for tax purpose. Does that suffice to meet the requirement ?
So you are saying she spent over 30 days in US in the year before march 7th? That is too bad. That is the only period you can choose. you don't have any other choice.
She cannot use the bonafide test, since that is for complete clalendar years, which doesn;t help her for 2012.
She cannot use the bonafide test, since that is for complete clalendar years, which doesn;t help her for 2012.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Unfortunately yes she spent more than 30 days in the us before she had her TN. But thanks for the information you provided, that was very informative.
So in the end I will still use form 1116 to claim a foreign credit. For the Canadian report I will use her RRSP to nullify the amount she owe to Canada and then report the amount of tax she paid after using her RRSP deduction on form 1116. That`s clear now even if I think there is something not right in all of that :)
Have a nice day.
So in the end I will still use form 1116 to claim a foreign credit. For the Canadian report I will use her RRSP to nullify the amount she owe to Canada and then report the amount of tax she paid after using her RRSP deduction on form 1116. That`s clear now even if I think there is something not right in all of that :)
Have a nice day.
If she owes no tax in canada, then why would you bother to file 1116? You have to have owed and paid tax in canada to get any credit.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I used her RRSP deduction to avoid her owing something but that doesn't mean she hasn't paid taxes. UCCB and Maternity leave benefits are taxable. Some tax she paid was already taken at the source. It's written on her T4E.
You see that's still the thing that does not sound right to me. Indirectly I'll pay more taxes to US because my wife used her RRSP deduction in Canada. The Us foreign Tax Credit is an amount calculated using the tax paid in Canada which is dependant of the RRSP deduction claimed.
Also another thing that bother me with the US return is that I ll end up paying a penalty because of my wife income. I think this should be independant of my wife income.
You see that's still the thing that does not sound right to me. Indirectly I'll pay more taxes to US because my wife used her RRSP deduction in Canada. The Us foreign Tax Credit is an amount calculated using the tax paid in Canada which is dependant of the RRSP deduction claimed.
Also another thing that bother me with the US return is that I ll end up paying a penalty because of my wife income. I think this should be independant of my wife income.
Tax withheld is NOT tax. The tax calculated on her tax return is what you can use on 1116.
Your starting to understand that it was not wise to invest in RRSP since she was also taxable in US. If you had asked here first, I would have told you this.
It is not so much that you pay a penalty. If you filed married separately, your tax would be much higher.
Your starting to understand that it was not wise to invest in RRSP since she was also taxable in US. If you had asked here first, I would have told you this.
It is not so much that you pay a penalty. If you filed married separately, your tax would be much higher.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Ok so everything is good then :) The amount shown on line 435 is not 0. It consists in our case only of Net federal Tax (420) + Provincial Tax (428) (my wife don't have CPP, EI premiums and Social Benefits repayments). When using the RRSP deduction it is equivalent to reduce the amount shown on line 435 to have line 483 equals to 0. The line 437 was not null in her case and corresponds to the Total income tax deducted.
There is a limit to the credit I can have with f1116. In my case there is just a difference of 400$ between this limit and my actual credit (because I used RRSP).
At this point it's just a matter to decide which country to favor. Either my wife owes 400$ to Canada or I pay 400$ more in tax to US. I'll probably pay more penalty in the second situation too (maybe a difference of few dollars) due to the higher income.
There is a limit to the credit I can have with f1116. In my case there is just a difference of 400$ between this limit and my actual credit (because I used RRSP).
At this point it's just a matter to decide which country to favor. Either my wife owes 400$ to Canada or I pay 400$ more in tax to US. I'll probably pay more penalty in the second situation too (maybe a difference of few dollars) due to the higher income.