I'm a Canadian commuting to the US. Last year nelsona was ULTRA helpful in guiding me through using the 1040 pro forma to decrease my US taxes. This year I'm in a situation where, even with the pro forma, I am unable to reduce my US taxes enough to be able to use up all my foreign tax credits for my Canadian taxes.
Is there a treaty that will allow me to reduce my US taxes to the extent that I can use all of my foreign tax credits in Canada?
Unable to use all foreign tax credits in Canada
Moderator: Mark T Serbinski CA CPA
No.
Those who live/work cross border have to realize that they will pay tax at the highest rate of all jurisdictions.
Now, what happened between last year and this year? I'm not aware of any US tax increase that would have dramatically raised your US tax.
Are you following the same process as last year? Or, have you gotten a Cdn tax deduction/credit that you did not have in previous years (such as higher RRSP deduction). or have you given up a US tax deduction/credit that you were using?
Those who live/work cross border have to realize that they will pay tax at the highest rate of all jurisdictions.
Now, what happened between last year and this year? I'm not aware of any US tax increase that would have dramatically raised your US tax.
Are you following the same process as last year? Or, have you gotten a Cdn tax deduction/credit that you did not have in previous years (such as higher RRSP deduction). or have you given up a US tax deduction/credit that you were using?
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
This year I have a net rental loss, which I know appears on both (1040 pro forma & Canadian) but also, the basic personal amount has increased in Canada as well as the Canada employment amount. This led to about $1200 of unusable foreign tax credit.
Last year, if not for rental income, I would have also been in the same situation (unusable foreign tax credit, although only a small amount) but was able to use it towards a deduction from the net rental income.
I have RRSPs that I've been carrying forward and thus, did not include them for this year either.
Last year, if not for rental income, I would have also been in the same situation (unusable foreign tax credit, although only a small amount) but was able to use it towards a deduction from the net rental income.
I have RRSPs that I've been carrying forward and thus, did not include them for this year either.
be careful, the treaty clause that allows you to use the pro forma, clearly states that it does not allow you to take Cdn losses into consideration when determining the US taxrate, so renatl loss cannot appear ofnthe proforma.
By what I've just said, your US tax should actually go higher.
But, otherwise, you can see why your situation has changed.
By what I've just said, your US tax should actually go higher.
But, otherwise, you can see why your situation has changed.
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
Allow me to clrify the loss issue a little.
The losses spoken of in the treaty are the SPOUSE'S losses, and one could easily define these as NET losses. So if your spoiuse had other income grwater than the rental loss, I would leave the loss in the pro forma.
Another point that you may not have considered is that, while the foreign tax credit is not to be put on the proforma, you are quite free to use any Cdn tax paid in the 2007 tax year asa deduction. This would be net payments to CRA, so would include UI and CPP and ALL withholding for ther calendar year 2007 as well as any money you sent for the 2006 tax year last april, but would be reduced by any refund you got LAST april.
The losses spoken of in the treaty are the SPOUSE'S losses, and one could easily define these as NET losses. So if your spoiuse had other income grwater than the rental loss, I would leave the loss in the pro forma.
Another point that you may not have considered is that, while the foreign tax credit is not to be put on the proforma, you are quite free to use any Cdn tax paid in the 2007 tax year asa deduction. This would be net payments to CRA, so would include UI and CPP and ALL withholding for ther calendar year 2007 as well as any money you sent for the 2006 tax year last april, but would be reduced by any refund you got LAST april.
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 nelsona.
Yes, my husband did have other income (earned in Canada) to offset the loss from the rental properties.
I did use Cdn taxes paid including UI & CPP (but forgot to add tax returns received in 2007, thanks for the reminder).
Another question comes to mind, how do I deal wirth RRSP contributions (for either my husband or myself) on the pro forma? Can I subtract RRSP contributions from income earned in Canada? After all, if it were a US registered contribution (like a 401k), it wouldn't be considered taxable and we are "pretending" all income was earned in the US. Maybe I'm grasping here...
Yes, my husband did have other income (earned in Canada) to offset the loss from the rental properties.
I did use Cdn taxes paid including UI & CPP (but forgot to add tax returns received in 2007, thanks for the reminder).
Another question comes to mind, how do I deal wirth RRSP contributions (for either my husband or myself) on the pro forma? Can I subtract RRSP contributions from income earned in Canada? After all, if it were a US registered contribution (like a 401k), it wouldn't be considered taxable and we are "pretending" all income was earned in the US. Maybe I'm grasping here...
You cannot use RRSP, since these are not deductible on 1040, and never have been.
And not that you are to SURACT any refunds you got from your 2006 tax assessment, these mean you paid LESS tax in 2007 calendar year.
And not that you are to SURACT any refunds you got from your 2006 tax assessment, these mean you paid LESS tax in 2007 calendar year.
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
That is correct. No RRSP cointributions are allowed on 2007 returns. In 2008, ONLY employer-sponsored RRSP contibutions are allowed, as are your 401(k) contributions on your Cdn return (not your 2007 return).
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
nelsona, it seems that the 1040 seriously limits the amount of rental loss one can report (form 8582, Part II), especially as adj. gross income approaches or exceeds $150k.
Given this fact, it seems I'm better off filing the 1040NR. Does this make sense or are there any other alternatives? It seems unfair that households with income ~ $150k or greater should not be able to claim rental losses.
Given this fact, it seems I'm better off filing the 1040NR. Does this make sense or are there any other alternatives? It seems unfair that households with income ~ $150k or greater should not be able to claim rental losses.
The 1040 was only an option you have in yor tool bag.
If it makes you pay more for whatever reason, then use 1040NR. 1040NR is a pretty high tax rate. I still believe that using 1040 to figure out a taxrate for 1040NR should yeild better than 1040NR by itself. But if not, use 1040NR
Just realize that for whatever reason, your US taxes are higher that you would have expected, and may play a role in deciding whether it is worth commuting to US vs. finding a job in canada.
If it makes you pay more for whatever reason, then use 1040NR. 1040NR is a pretty high tax rate. I still believe that using 1040 to figure out a taxrate for 1040NR should yeild better than 1040NR by itself. But if not, use 1040NR
Just realize that for whatever reason, your US taxes are higher that you would have expected, and may play a role in deciding whether it is worth commuting to US vs. finding a job in canada.
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
nelsona, perhaps you can help...
I went to a local tax preparer and showed her my work. She seemed to follow the pro forma / Article xxv method I used without issue. I complained about having to limit my rental losses on my pro forma and when she told me that if the income was "active" in nature (it was) that it should not be limited. I decided to let her take care of redoing my taxes (gave them to her in late March). I did not receive my return from her until April 15th at 7:00pm (despite calling a few times). When I got the return back it was identical to what I had already done :( so I simply submitted the one I had prepared.
Anyway, in reading further, it does appear that, in my situation, the rental losses should NOT have been limited as they were not passive in nature. Needless to say, I'm only discovering this now. Is there a way to amend my return now, even though I sent it in on Tuesday (from Canada so they likely haven't received it yet)? The difference would result in an extra ~$2000 in my pocket, which is significant.
Any thoughts / recommendations (besides not paying the tax preparer for simply copying my work! :( )?
I went to a local tax preparer and showed her my work. She seemed to follow the pro forma / Article xxv method I used without issue. I complained about having to limit my rental losses on my pro forma and when she told me that if the income was "active" in nature (it was) that it should not be limited. I decided to let her take care of redoing my taxes (gave them to her in late March). I did not receive my return from her until April 15th at 7:00pm (despite calling a few times). When I got the return back it was identical to what I had already done :( so I simply submitted the one I had prepared.
Anyway, in reading further, it does appear that, in my situation, the rental losses should NOT have been limited as they were not passive in nature. Needless to say, I'm only discovering this now. Is there a way to amend my return now, even though I sent it in on Tuesday (from Canada so they likely haven't received it yet)? The difference would result in an extra ~$2000 in my pocket, which is significant.
Any thoughts / recommendations (besides not paying the tax preparer for simply copying my work! :( )?