I am a dual citizen with residency, tax home, investments and everything in Canada. My only tie to USA is my citizenship. I file both US and CDN tax returns however my taxes are paid in Canada and for the many years (since around 1989 when i worked in USA for 1 year), my US tax has allways been 0.
For 2007 i'm surprised to be finding i owe about $500 in US tax.
I had no earned income, only passive income from investments. As such the 2555 exclusion is not applicable i believe.
My income from mutual funds was in the $10,000-15,000 range. Much of this is treated as capital gains in canada, it is from re-invested dividends in mutual fund (Saxon small cap). My net tax in canada works out to about $250. I can use the 1116 form to deduct this tax paid.
For my US tax i only have the standard deductions of $5350 + $3400 and then a small amount from 1116 for tax paid in the passive income. This leaves me owing about $450US to the IRS. I presume this the result of canada having more favourable tax rates at the low end than USA. It also is the favourable treatment that these dividends get as capital gains in canada. They are treated as normal income in US.
Am i missing something here? I dont really want to give up US citizenship but if i will face bills like this each year while living in canada i may need to re-consider.
Dual Citizen - live/work etc in canada - still owes US tax?
Moderator: Mark T Serbinski CA CPA
You have similarities to my situation. I came to Canada nearly 20 years ago, became a dual citizen, and now I have no financial ties to the US whatsoever. My advice: do your due diligence and don't trust off-the-cuff responses from anyone who isn't an expert (and, even then,...). Misinformation abounds. As a dual citizen working under two systems, I believe it helps to understand certain aspects of the law -- tax law, immigration law, cross-border agreements and protections, and even the odd court case. As Nelson likes to say, "Google is your friend."
Unfortunately, and this has always been the case, as a US citizen living in Canada, you will always pay the higher jurisdiction tax on all income.
If the tax you pay in Canada was $250, and the US tax calculated (without any credits) was $700, then you will end up paying at least $450 to US (maybe even a little more) by applying the credit on 1116.
You need to look for ways to reduce your US tax. Your mortgage and real estate taxes would be a good place to start (to try and get you over the standard deduction amount).
If the tax you pay in Canada was $250, and the US tax calculated (without any credits) was $700, then you will end up paying at least $450 to US (maybe even a little more) by applying the credit on 1116.
You need to look for ways to reduce your US tax. Your mortgage and real estate taxes would be a good place to start (to try and get you over the standard deduction amount).
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
it may also be time to start cashing soe of your RRSP, since you are in a low tax bracket. This should add some tax to your Cdn balance without adding too much to your US one.
You may be able to reach an equilibrium...
You may be able to reach an equilibrium...
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
like if you took $5,000 from your RRSP you might pay an extra $500 in Cdn tax.
This would likely only transalte to another $250 in US tax (since it would not all be taxable in US) and your US tax is taken care of. And you have paid low tax on your RRSP.
This would likely only transalte to another $250 in US tax (since it would not all be taxable in US) and your US tax is taken care of. And you have paid low tax on your RRSP.
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 for the comments.
1) I think i have now found a way to do this, but i'm still reading to try and confirm. It appears there is ip to 10 years carry forward allowed on the 1116 - but not much in the way of recording keeping or the amount available for carry forward. So i did a spreadsheet for the past 10 years and found: 2006 passive income on 1116 form - line 13 - taxes available for credit exceeds line 20 - credit taken by $750. So if i get this correct i can carry this 750 forward to my 2007 1116 form on line 10. This should take care of the tax owing in US this year. Did i need to do something in 2006 to indicate i wish to carry forward the excess?
2) In 2003-2005 i had a similar situation on my 1116 for general limitation income. If i get this right i can use the same calculation above (line 13-line 20) each year. These can all be added up and are also available for carry forward in the same way. Do i need to have somehow reported the carry forward amount each year in order for it to be available? or can i just do as i have done and keep my own records in a spreadsheet? Until 2007 i have never used line 10. Does line 10 essentially work as a running total of the carry forward amount i have? If so have i lost the carry forward amounts from 2003-2005 which were not reported on line 10 in past years.
3) And if i get it right somehow you can apply carry forwards from onecategory of income to another category. If i can still claim my carry foward in #2 above for general limitation income and then apply it down the road to expected passive income it would be ideal.
Thanks for the helpful comments, they are appreciated. I've not found much in the way of support here in the ottawa area on these issues.
1) I think i have now found a way to do this, but i'm still reading to try and confirm. It appears there is ip to 10 years carry forward allowed on the 1116 - but not much in the way of recording keeping or the amount available for carry forward. So i did a spreadsheet for the past 10 years and found: 2006 passive income on 1116 form - line 13 - taxes available for credit exceeds line 20 - credit taken by $750. So if i get this correct i can carry this 750 forward to my 2007 1116 form on line 10. This should take care of the tax owing in US this year. Did i need to do something in 2006 to indicate i wish to carry forward the excess?
2) In 2003-2005 i had a similar situation on my 1116 for general limitation income. If i get this right i can use the same calculation above (line 13-line 20) each year. These can all be added up and are also available for carry forward in the same way. Do i need to have somehow reported the carry forward amount each year in order for it to be available? or can i just do as i have done and keep my own records in a spreadsheet? Until 2007 i have never used line 10. Does line 10 essentially work as a running total of the carry forward amount i have? If so have i lost the carry forward amounts from 2003-2005 which were not reported on line 10 in past years.
3) And if i get it right somehow you can apply carry forwards from onecategory of income to another category. If i can still claim my carry foward in #2 above for general limitation income and then apply it down the road to expected passive income it would be ideal.
Thanks for the helpful comments, they are appreciated. I've not found much in the way of support here in the ottawa area on these issues.
Your carryforward is claculated on the 1116s that you submitted every year. If using software, this figure would be readily available.
At the very least you would need to amend the previous returns to include the 1116, if they are missing.
the carryforwards are not transferable between categories.
At the very least you would need to amend the previous returns to include the 1116, if they are missing.
the carryforwards are not transferable between categories.
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 for the input. Alas i use software for canada taxes but have thus far avoided using fancy software for US taxes. Perhaps having US software would help next year, but for this year perhaps not as it would not have record of my previous years returns which are critical in this case.
I can see how 1116 line 10 is used to apply an amount carried forward or back to this year. I do not see however that it provides a way to record a cumulative carry forward amount or even a yearly carry forward amount for use in future years. All the reading i have done suggests that you keep your own records and then attach a computation to support any claim on the carry foward/back on line 10. So it seems to me that there is no need to report what is available to carrry forward back, simply to provide computations to support any time you use up some carry forward/back.
I can see how 1116 line 10 is used to apply an amount carried forward or back to this year. I do not see however that it provides a way to record a cumulative carry forward amount or even a yearly carry forward amount for use in future years. All the reading i have done suggests that you keep your own records and then attach a computation to support any claim on the carry foward/back on line 10. So it seems to me that there is no need to report what is available to carrry forward back, simply to provide computations to support any time you use up some carry forward/back.