Alaska Permanent Fund - taxable in Canada? When?

mackayr · Post by **mackayr** » Mon Dec 05, 2011 11:12 am

I have a client that received a payment from the Alaska Permanent Fund. It's called a dividend, but is issued on a 1099 MISC. This leads to two questions:
1) Is it taxable for Canadian income tax purposes? The Alberta government issued a similar one-time payment back in 2004, which was non-taxable.
2) If it is taxable - when? I have a client who relocated to Canada in August 2009, but the payment wasn't issued (nor was it known) until September/October 2009. It is based on (among other things) residency in the prior year (ie. 2008).

Thanks!

JGCA · Post by **JGCA** » Mon Dec 05, 2011 11:47 am

The IRS is clearly taxing this in the US, so I feel it follows that CRA will also tax it in Canada and once could then claim the FTC.

NOrmally a dividend is taxed when it is paid out not when its declared, therein it would be taxable to the recipient on that date it was paid.

mackayr · Post by **mackayr** » Mon Dec 05, 2011 11:54 am

Righto! That's precisely where I was headed with it. Unfortunately, the spouse (the recipient) had no other income in Canada for that period, so will not be taxable. Therefore the FTC will not be beneficial to her - nor her husband who effectively will be paying tax on it via reduction of spousal amount.

Thanks for the quick response!

JGCA · Post by **JGCA** » Mon Dec 05, 2011 12:14 pm

Could they file a joint return in the US, then in Canada one spouse can elect to take the dividend income of the other on his T1 and maybe claim the FTC this way could this work?

JGCA · Post by **JGCA** » Mon Dec 05, 2011 12:20 pm

Nope, I see that the only dividends you can elect to claim on your return of a spouse are Taxable Canadaian Dividends so it would not work!

nelsona · Post by **nelsona** » Mon Dec 05, 2011 2:21 pm

Wh ywould FTC come into play here at all?

This is effectively connected income in US, so a 1040NR can be filed to rduce the taxation in US, likley to zero.

You didn;t say what the ammount was, nor if either spouse was a citizen.

But, as you have both concluded, it is taxable in canada.

Hopefully that will be the only place it is taxable.

mackayr · Post by **mackayr** » Mon Dec 05, 2011 2:38 pm

She's a US citizen, so my question was only with respect to Canada - the US taxation was inevitable. Unfortunately, in this instance they're effectively being double taxed on it. Her US return (she has other taxable income) and his Canadian return (by virtue of the reduction of spousal amount). Sometimes things simply fall outside the double-taxation-avoidance mechanisms. I'm sure there's a way to get around it, but for the amount we'll save (it's only a $1,300 payout), it's not worth it.

nelsona · Post by **nelsona** » Mon Dec 05, 2011 2:53 pm

I don't see a way around it not being reportable in canada, and thus having the effect you describe.

The tax in US should be minimal however, since she has no other income 9otherwise she wouldn't qualify for the spousal ammount), so "double taxation" is a bit of an overstatement.

mackayr · Post by **mackayr** » Mon Dec 05, 2011 3:35 pm

"I don't see a way around it not being reportable in canada, and thus having the effect you describe."

I meant a way around the double taxation - not the inclusion of income. For instance, it's conceivable that he may be able to elect to be taxed as a full year resident (married to a US citizen at the end of the year), use 2555 to eliminate his tax, but increase her standard deduction and otherwise enjoy the benefits of joint filing. She was employed full time before moving to Canada, and has no income except this PFD payment thereafter, so yes - she's going to be taxable in the states, and his spousal amount is reduced - or is it? Now I'm second guessing the eligibility for the spousal amount. If we need to include her pre-residency income his spousal amount claim, then he won't have a claim. I was using the technical instructions for the spousal amount - ie. to use the income from line 236 of the spouse's return, not just the income after the marriage date. I interpret the issue of support to be required at some time during the year - not for the whole year. In this case, it's the same amount since the income before she moved to Canada wouldn't be included in line 236 on her return. References that I found to how to handle the spousal amount for immigrants deals with if the supporting spouse is an immigrant, or if they're both immigrants. I'll dig further, but perhaps someone can clarify this matter.

In the meantime, I'm now wondering how CRA will handle this if I am required to reduce his claim for her by what would be line 236 on her return if she filed a full year return. Because his return is a full year resident return, it will be processed through the normal stream (ie. not the ITSO). It wouldn't surprise me in the least if they adjusted her income to line 236 from her return to "correct an error in the preparation of the return.

The plot thickens!

Thanks, Nelsona, for raising another issue that I didn't know was an issue.

mackayr · Post by **mackayr** » Mon Dec 05, 2011 3:37 pm

Correction: "use 2555 to eliminate his tax," should have read "use 2555 to eliminate his income (all earned income),".

JGCA · Post by **JGCA** » Mon Dec 05, 2011 4:16 pm

To be able to claim the spousal amount on the T1 you must include the net income of the spouse for the entire year, if you are claiming she was not a resident of Canada while she earned the dividend and is the reason why you did not report it for the spousal claim then this is not correct you have to include all her income even if it is not taxable to her to determine his claim for her as his dependant, you will not be able to claim teh spousal amount if her income is too high due this.

nelsona · Post by **nelsona** » Mon Dec 05, 2011 4:35 pm

I can confirm that for the RESIDENT spouse to claim the spousal ammount on line 303 of schedule 1, the , WORLD income for the entire year must be used, not merely the income reported on the newly arrived spouse.

the only time one deviates form this is when the one claiming the spousal ammount, and their spouse BOTH move in the year.

In such cases, only the Cdn income is used, but also the eligible ammount is reduced by number of days outside Canada.

Reasoning:

If a Cdn taxpayer marries a person who remains non-resident for the entire year, CRA requires that WORLD income be used. Therefore, the same would apply to a newly arriving spouse.