Article XXV for Canadian Residents

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Sun Mar 31, 2019 10:48 am

It isn't ss or medicare. Just put whatever numbers you need to satisfy the software. You are not producing a final approved 1040.

btw in my earlier post the rate is of course line 11 divided by line 10.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sun Mar 31, 2019 11:37 am

I thought as much!
Thank you Nelsona.

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Article XXV for Canadian Residents

Post by papillary » Sun Mar 31, 2019 8:01 pm

When filling the 1040 Pro Forma, we put our name, SSN, and address in Canada. Do we then fill in the info for the spouse and kids or that is just left blank?

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Article XXV for Canadian Residents

Post by papillary » Sun Mar 31, 2019 8:14 pm

for the 1040NR

Is anyone claiming the Child Tax Credit (CTC)? or Credit for Other Dependents (ODC)?

I am getting confused with things because it clearly says that for the CTC you need SSN. Since my kids are Canadian citizens and residents and only have ITINs, they clearly do not qualify.

So then it says that if you do not qualify for CTC (and the Additiona CTC for that matter), you can qualify for the ODC for which you can use SSN or ITIN, which my kids have, but then when I started filling out the worksheet for this purpose, they have a Caution line stating not to include "anyone who is not US citizen, US national, or US resident alien.

Does the tax treaty have a say on this where an article can be used in order to claim the ODC? because the a Canadian should be treated as US citizen for tax purpose. Can anyone clarify this for me?

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Sun Mar 31, 2019 9:27 pm

XXV(2) states that for the purposes of granting a "deduction" a dependent living in Canada is to be treated the same as one living in US. This was for the "deduction" known as an exemption until 2017, which no longer exists.
Can it be extended to the "credit" in ODC? Perhaps.

I would point out that Mexico enjoyed the same treaty benefit. However, in Pub. 972 IRS uses an example of an otherwise-qualified dependent who lives in Mexico, but does not qualify for the ODC, on that basis. I would think that this applies to Canadians as well.

If you apply for it, be prepared to be denied, and have to owe to IRS and have to redo your Cdn taxes as well. Not worth it in my opinion.


All using these XXV procedures need to remember that the goal of these is not to absolutely minimize ones US tax. It is merely to reduce it sufficiently to be below your Cdn tax, to use that new US tax completely as a credit. Doing anymore than this, is wasted effort. Canada will gladly lap up the extra tax that you saved in US

It is generally enough to apply the simplest tax positions to reduce US tax.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Article XXV for Canadian Residents

Post by papillary » Mon Apr 01, 2019 7:28 am

nelsona,

Thank you for your continued input.

I had read that example about other dependent in Mexico, and what you said makes complete sense, that perhaps we can claim the OCD under the treaty but in the Mexico example that person did not qualify to get the OCD, so a Canadian would then be in same position, so why would we want to go through all that trouble.

I ran a couple of scenarios for the US and Canada returns by claiming and not claiming the CTC or OCD, and basically as you said what you save on the US taxes you end up paying on the Ontario part of the Canada return so it becomes almost pointless to go crazy trying to minimize the US taxes (as you had indicated many times in previous posts).

Thanks again.

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Mon Apr 01, 2019 10:59 pm

@Nelsona,

Thank you for your support on this forum, I must commend your effort, its been awesome!!!
I have learnt a lot here, something most CPA do not or insist they cannot do, great job to you!
I have one question on this XXV(3):

I have done my taxes, both Canadian and U.S and realized most of what you said is true, one only need to lower his/her taxes just below the Canadian rate (making use of FICA etc), any further reduction is waste of time and you are taking money from Peter to pay Paul- absolutely TRUE.
Here is my question, for me I will be getting some refund back from CRA, so I discovered my U.S taxes including FICA is still not enough tax to CRA probably because my withholding tax is Married with no state tax.
I can choose to file regular 1040NR and pay back IRS this huge money (not my choice as I don't have the money right away) OR file 1040NR using Article XXV(3) which lower my U.S taxes with couple of thousand dollars but CRA will take the exact amount back- fine.
I prefer the option of XXV(3) since I would not have to pay IRS this huge amount and CRA will only reduce my refund but this is my first time of filling 1040NR using XXV(3), my concern is that is there a possibility IRS can push back on this approach, I am aware a number of people have done it on this forum and it works great; I have also read on this forum that some CPAs have refused to file 1040NR with XXV(3).
I will be confident to go the 1040NR XXV(3) if there won't be push back from IRS on this method of filling.

Thank you

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Tue Apr 02, 2019 10:12 am

There is no pushback from IRS. US CPAs are ALWAYS reluctant to apply treaty. You should be doing this on your own anyways.

I do not concern myself with refunds, I only care about actual tax. If your withholding is too much, adjust it going forward.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Wed Apr 03, 2019 9:12 am

I wanted to add onto nelsona comments as well with pub. 972 which was mentioned.

Looking also at Pub. 501 (Dependents, Standard Deduction and Filing Information) it looks to me like publications may not be aligned which also causes confusion even though there was also that Mexico example.

Page 11/12 have good information. Table 5 states the following: Overview of the Rules for Claiming a Dependent (third point mentions resident of Canada)
--------------------------------------------------
• You can't claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer.
• You can't claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of
withheld income tax or estimated tax paid.
• You can't claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of
Canada or Mexico.
• You can't claim a person as a dependent unless that person is your qualifying child or qualifying relative.
--------------------------------------------------
In another post nelsona stated:

The fact that CTC and ODC appear on the 1040NR, obviously means that non-residents are not expressly forbidden to take CTC. So then it is the dependents that need to qualify, by (a) meeting the quals of being your dependent, AND (b) meeting the documentary requirements of CTC and ODC.

This would be the case whether you are using 1040 to file (using XXV(2)), using 1040NR alone, or using 1040NR and XXV(3).
------------------

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Wed Apr 03, 2019 10:47 am

Remember that there is a difference between "claiming" a dependent, and getting the CTC and/or ODC. The "claiming" is GONE as of this year.
CTC/ODC rules change every year, and are not entirely based on citizenship, so treaty doesn't work on that. The wording in pub 501, is based on the treaty clause which was for specifically worded for exemptions.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Wed Apr 03, 2019 11:50 am

Thanks for clarifying. That is an important distinction which I was missing.

Does not apply to me as my kids have SSN but still good to get the clarity for others.

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Article XXV for Canadian Residents

Post by papillary » Fri Apr 05, 2019 2:11 pm

told my friend about the pro forma and all that stuff that I learned about here. My friend calls the IRS international help to get that he felt he needed and he was told that they never heard of this. Does this make sense to anyone?

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Fri Apr 05, 2019 3:16 pm

Yes it does,
I have long ago coined the phrase "telephlunkies" to describe the caliber of IRS/CRA help center folks -- and thus the quality of their answers. These are mere functionaries. Think DMV without the personal skills.

You can call 3 times and get 4 different answers, and none may be correct.

I have NEVER bothered to call IRS and CRA, "international" or otherwise.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Sat Apr 06, 2019 7:00 pm

This does exist in the Internal Processing Manual that the IRS themselves uses.

nelsona is correct where answers are different. In my case I did get lucky to find someone from the IRS that took the time to look the article up. They found it in their IRS manual which the IRS should refer to when received. Another individual had no clue.

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Article XXV for Canadian Residents

Post by papillary » Sun Apr 07, 2019 7:56 pm

Thank you both for your input.

nikitapunch,

Can you tell me for the 1040 Pro Forma, did you fill out page 1 completely with your info and your husband's and you both signed it.....

Post Reply