1116 after filing 2555 previous year and effect of RRSP

[msp]

Hello,

After reading this site thoroughly last year, I filed my wife's and my taxes as full year US residents using form 2555 to exclude partial year Canadian income from 2008. This year, we returned to Canada and I was intending to do the same. However, since our move back to Canada was later in the year, we can only exclude about 25000 in Canadian income which does not significantly reduce the tax obligation on the 1040.

The other option is 1116, which nelsona has said will prevent the use of 2555 for a number of years in the future which is a risk we are willing to take. However, since nelsona has also said the credits applied for on this form must be from the completed tax return and not the amounts reported on the T4, I have a question about RRSPs.

Without the RRPS contributions I am making this year, I will owe money. However, with the RRPs, the total taxes paid in Canada will be 0 for the purposes of the 1116. My question is, has anyone tried filling out the 1116 without taking into account the effect of the RRSPs. Or is this illegal?

Thank you!

[nelsona]

1116 is for taxes after all has been considered including rrsp, and you should use the accrued method not the tax paid method.

remember that 2555 is only for wages.

also remember that if your rrsp contrib is not going to save you taxes, them you can always delay the deduction to future years.

if your rrsp reduces your cdn tax to zeo, my guess is that you are not getting very much tax reduction for your rrsp anyways.

i would still be using 2555 in your case, even if i could not excude all my cdn wages, and use 1116 on the rest.
then my decision to use rrsp contribution would be based on my cdn taxes only.

don't look at what tax you might owe at filig, look at the total tax you will pay using the various strategies

[msp]

Thanks! I would like to use 2555 but I believe you need to be in Canada for 330 days and since I moved back half way, I may not qualify to use it this year.

[nelsona]

You can use it if you WILL be in canada for that period. You simply file extension until you meet the test. And you prorate the exclusion.