Treatment of Interest on a CDN Savings Account [US Resident]

[CheckingIn]

Question for those that know about tax treaty questions.

We are transfering some money [~US$ 400,000 to CDN $] to sit in a Canadian Credit Union in BC [just in the case the US$ does an unexpected freefall]. We are transferring money in anticipation of buying an investment property in Vancouver. Because of the state of the market we might have that money in the savings account for 'at least' a few months. So, my question is -- what happens with the interest when we are doing our US tax returns? -- Is there a different way to treat the federal vs. Provincial interest. Can we even claim back/factor in the provincial interest or is it only federal?

Hope above makes sense. Thanks.

[nelsona]

There is no such thing as 'federal' or 'provincial' interest. There is just interest. So, I'll assume you mean taxes.

As a non-resident living in US, you are not subject to any Cdn tax on this interest, since Jan 01, 2008.

So, on your US return, you will simply include the interest (in US$) on your Schedule B. You will also need to report the existence of this and all other foreign accounts you have on form TD F 90-22.1 every year.

By the way, when you finally do use the funds, you will have to account for (as a capital gain or loss) the value in US$ that the transferred money gains or loses. (ie. putting aside the interest, If your original US$400K grows to US$420K -- if the US dollar drops -- you will need to include US$20K as a cap gain on your 1040).

[CheckingIn]

My husband is less freaked out about the US economy than I am, so it's good know we won't be subject to Cdn tax on this interest. Didn't realize the rules had changed, before this rule Vancity was taking their cut, which wasn't much mind you -- last year.

Thanks Again!

[nelsona]

Well Vancity was merely acting a s the federal govt agent, and remitting this to CRA.

That 10% tax could be used as a credit on your 1040, using the 1116 form.