Interest Income T5 And Emigrant Return

colinc · Post by **colinc** » Tue Feb 25, 2014 12:52 am

I'm filing an emigrant return for 2013 and one of my banks says they will mail a T5 for all interest in 2013.

What are my income reporting obligations to the US and Canada? I'm filing 1040NR for US return

CANADA
I read here:
http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... s-eng.html

"interest that you receive or that is credited to you is exempt from Canadian withholding tax if the payer is unrelated (arm's length) to you" meaning 0%

On the other hand I see posts in this forum saying 10% needs to be withheld, did something change?

Regardless do I have to "fixup" the amount reported when I receive T5 to what it should be?

USA
http://www.irs.gov/pub/irs-pdf/p901.pdf

Residents of Canada have interest income exempt. Since I'm filing 1040NR I'd assume this income is exempt and there not reportable? Do I need to fill schedule OI? I've already mailed my return in...

nelsona · Post by **nelsona** » Tue Feb 25, 2014 6:08 am

You owe no interest in Canada on the interst earned after your departure date. You do of course owe CRA for interst from before that date.

If you are filing 1040NR, then you do not report CDn interest. You will next year when you file a 1040.

May I ask how you determined that you were eligible to file 1040NR?

nelsona · Post by **nelsona** » Tue Feb 25, 2014 6:10 am

... and yes, things DID change, a couple of years ago, the treat was amended to lower the Cdn NR withholding tax on interest to US residents from 10% to 0%. This coincided with CRA's universal abolition of NR tax on interest to 0.

colinc · Post by **colinc** » Tue Feb 25, 2014 1:45 pm

Since I do not owe tax on interest after I departed will it be sufficient to attach a spreadsheet of interest payments to show how I'm adjusting the interest reporting?

I do not meet the Green card or substantial presence test which allows me to file 1040NR. Subsequently I will be filing 1040 next year as you said and reporting world income.

nelsona · Post by **nelsona** » Tue Feb 25, 2014 3:12 pm

A spreadsheet? I guess that would be more than enough.

Did you verify that filing a fulll-year 1040 would not be better? Canadians ALWAYS have the opinion of filinga a full 1040 if it helps, regrdless of SPT of GC. When did you leave Canada? 1040NR is usually the highest taxrate on US income, especially if married.

It is simpler of course, but if you are going to be filing 1040 for 2014, and you will have to get used to the exta filing requirements for foreign accounts, you might as well start in 2013, and save some tax. While you must include all 2013 income You would exempt your Cdn wages by form 2555 and use the Cdn tax on other income (including the Cdn bank interest
and taxes). This would get you standard deduction in US.

nelsona · Post by **nelsona** » Tue Feb 25, 2014 3:14 pm

I guess we've been through this choice with you before. Never mind. Hope you got rid of TFSA etc before Jan 01.

colinc · Post by **colinc** » Tue Feb 25, 2014 4:02 pm

Yes the TFSA was closed a few days after I arrived in the US in November.

Since I was single and had the bulk of my income in Canada I believe you concluded there would be extra work and probably none if any tax benefit. Would having the standard deduction be worth it?

nelsona · Post by **nelsona** » Tue Feb 25, 2014 4:21 pm

How much wages did you make?

nelsona · Post by **nelsona** » Tue Feb 25, 2014 4:22 pm

US wages

colinc · Post by **colinc** » Tue Feb 25, 2014 5:16 pm

US Wages: Gross 33k, AGI 30k

nelsona · Post by **nelsona** » Tue Feb 25, 2014 5:23 pm

probably not worth the effort.

colinc · Post by **colinc** » Wed Feb 26, 2014 3:02 am

Confirmed it's not worth the effort.

I ran my numbers against Turbo Tax 1040 Online.

Although I got the standard deduction and excluded foreign income it looks like the Foreign Earned Income Tax Sheet calculation causes my marginal on the US to skyrocket.
http://apps.irs.gov/app/vita/content/gl ... _1040i.pdf

Tax (Foreign Income + US Income) - Tax (Foreign Income) = Tax (US Income) starting at the marginal tax rate of the Foreign Income

Total tax would be 1500 more on top of the more complex filing requirements.

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Dual Status would probably get me farther with itemized deduction on sales taxes but it'd probably be offset by Canadian interest income reported to the point of the difference being puny and not worth the TFSA tax filing.

nelsona · Post by **nelsona** » Wed Feb 26, 2014 9:36 am

Agreed. Unless to FEIE can make you non-taxable, the taxrate it calculates is often punative, unlike the old days.

And dual-status never buys you anything.

nquery · Post by **nquery** » Wed Feb 26, 2014 1:16 pm

Hi,

Just wanted to comment on dual-status returns ... there *are* some situations where dual-status does make sense. I in fact had much lower taxes when emigrating from Canada in 2012.

I think this occurs when your effective canadian tax rate is lower than your effective MFJ tax rate and you emigrate later in the year. This could occur with large RRSP deductions for example.

Simplified example from my 2012 case:

120k income in Canada, emigrated oct 1, 40k further income in US = total of 160k
26k cra deductions, mainly from rrsp contribs

1. canada: tax on pre-emigration 120k = 22k (19% effective)

2. us: mfj tax on entire 160k = 32k (20%) - 22k tax credit (100% if lucky) = 10k

vs. mfs tax on post-emigration 40k = 6k (15%)

So 4k better off filing dual-status.

In fact, in my case the difference was even larger than this because:
- my USC wife had a small canadian income prior to emigrating that also had same profile: an effective canadian tax rate < MFJ marginal rate but ~= MFS rate
- things like child tax credit were available to me at my mfs income level that were not available at MFJ level.

Anyways, I know you often suggest that people don't both with dual-status returns but just thought I would throw that out there as a concrete example ... ymmv

nelsona · Post by **nelsona** » Wed Feb 26, 2014 2:25 pm

nquery, you forgor 2 things:
1. When you mfj, you use 2555 to exclude wages, not 1116 to take credit for Cdn taxes.
2. Since you moved in October, you could hav just filed 1040NR, which would have been the no worse than dual status, as OP pointed out.

Re-read what I said: dual-status does not buy you anything over 1040NR. It can be better than MFJ, but this is ually for those that could file 1040NR anyways (ie. late-year arrivals). Those who arrive earlier in the year, and thus cannot file 1040NR, benefit MOST from 1040 mfj, because all their Cdn ages get excluded.