First time home buyer credit increases Canada tax payable?

[GTAresident]

Hello Nelsona,
Trying to understand formula how US tax credit is calculated for Canada tax return and still working out with ballpark numbers without W2. Brief details about me.

A) I was resident of Canada upto May 09.
B) I bought a house after moving to US so that I can get $8000 credit
C) I was putting in 401K just 6 % upto May 09 to get company match but increased 401K heavily later to cover full 16,500 limit.
D) Spouse has some income from Canada prior to move.

Here is my interpretation of tax credit calculation, please correct me if needed.

I am putting approximate numbers in front of each get a realistic idea and to make it little more meaningful to understand.

1) I take gross income including spouse for the year- Let me call as "A" = $110,000

2) I take only my gross income excluding spouse- I call as "B" =100,000

3) I take a ratio of B/A which is my contribution to our gross income- I call as "C" =0.91

4) I take all my income excluding spouse- upto the day I was resident of Canada- End May 09. I call it as "D"= 37,500

5) I calculate total tax payable for federal and state using turbo tax using married filing jointly and using world income including Canada rental income. I call as "E" =20,000

6) I take total of taxes paid for social security and medicare during year. No refund on any of those. I call as "F" =5000

7) In short our total taxes paid during year= E+F- I call as "G" which includes spousal contribution of taxes. G= 25,000

8) I multiply G by C to arrive at my own tax contribution excluding spouse. I call as "H"= 22,730

9) Now to calculate ratio of income while Canada resident to total income, I take ratio of D/B and multiply that by H (total taxes paid excluding spouse) which can be used as credit for Canada tax. I call it as J= 8524

10) For Canada return- I can use above credit amount= J= 8524 multiplied by CRA exchange rate.

11) For RRSP- I take 2008 CRA tax return amount as max contribution allowed . Use my 401K contributions during Jan 09 to May 09. Since 401K amount was lower due to only 6 % contribution , I will have to buy additional RRSP from Canada bank before end Feb 10 to use full available RRSP room.
Please advise if there is any concept error.

Due to my first time home buyer credit, my US tax liability reduces therefore it increases my Canada tax payable.

Thanks

[nelsona]

I'll try to correct...

2) is not required. You use total gross including spouse in all these calcs.

3) C is not required either.

x) The income tax ratio becomes x= E * D/A

y) The social security ratio is y =F * (end-may wages/full-year wages)

6) 7) and 8) mean nothing.

9) since your 401(k) contributions made before may and the US tax credcit above will probably make your Cdn tax rate very small, it would probably render any more RRSP of little value.

10) J is x + y as described above. The exchange rate is used to convert to CDn.

[GTAresident]

Hello Nelsona,
Thanks for the prompt reply. Few more questions.

1) How to split US tax credit for MFJ combined between me and spouse for Canada returns filed individually?

2) In y) in your reply, you mentioned social security. Do you mean social security only or social security plus medicare?

Thanks

[nelsona]

1) what US income is your spouse reporting on her Cdn return? If none, she has no credit coming to her on Cdn return.

2) SS and medicare

[GTAresident]

Hello Nelsona,
No spousal income.

Thanks for correction. Now to understand specifics.

Is "A" above to be taken from Line 7 or Line 22 or Line 37?

Thanks again.

[nelsona]

22

[GTAresident]

Hello Nelsona,
Quick questions from your reply from previous post for calculating Canada tax credit for filing departure tax to Canada

1) From your formula above, x= E*D/A where E is income tax paid to US, D is my income in US while resident of Canada due to family living there and A is line 22 MFJ income, I have two ways of calculating D.

a) Taking all actual earnings itemized like salary, moving allowance paid etc and add them together.
b) Work backwards from Box 1- W2 amount proportionately and add 401K amounts for Canada residency period and again claim 401K as RRSP eligible.

Initially I thought both amount should be the same but it does not work out that way.

[nelsona]

It's really not that complicated.

[GTAresident]

Hello Nelsona,
You had provided for guidence for detailed calculations for tax credit portion on US return for Canada return in above posting. You also mentioned that Line 22 is to be taken for denominator which already includes rental loss.

My question is how to report loss on schedule E on rental income ( primarily due to depreciation) on Canada return ?

We are already including net rental income while canadian resident on Canada return and balance net rental income on 216 return for non resident period

[nelsona]

You can't.

[nelsona]

Yo report rental income on your US return and you report rental income on your Cdn return. You follow the rules for each country independently.

The only thing that possibly from one to the other is US tax on US property as a credit on your Cdn return, and Cdn tax on Cdb rental property as credit on your US return.