Hi,
I have a unique situation and hope someone can help me.
I am a US resident alien and a Canadian citizen (non-resident).
I am a research fellow in the US and have received a Canadian fellowship.
The money will generate a T4.
The institution I work at wants the money to be paid through their financial department. They will not withhold any taxes.
If I receive the money in the US, can I claim exemption from US taxes under the overseas earned exemption credit?
The money will be taxable in Canada no matter what, even if I pay US tax on it, as it will just qualify for the foreign income tax paid deduction in Canada.
Please let me know.
Thank you.
Brandon
Canadian fellowship paid in the US
Moderator: Mark T Serbinski CA CPA
You cannot exempt the income, because you live in US, so you do not qualify for either the bona fide or substantila presence test.
The income is Cdn-sourced, so your primary taxation will be there. Any credit would have to be given on your US return, thru the FTC (from 1116) process.
The income is Cdn-sourced, so your primary taxation will be there. Any credit would have to be given on your US return, thru the FTC (from 1116) process.
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
Thank you for your response Nelsona.
The organization who is giving me the fellowship is recommending taking it in Canada directly, to avoid potential double taxation issues.
However from your comment, it seems that no matter how I accept the fellowship, it will be taxed in both the US and Canada? Am I understand this correctly?
Option 1 - fellowship paid to me in Canada. Pay federal taxes only to Canada. Do I then also pay taxes in US? Or would it then be considered for an exemption if it wasn't paid in the US?
Option 2 - fellowship paid in USA. Pay Canadian taxes first, then deduct Canadian tax credit from US taxes?
Either way it seems like a raw deal.
Basically, under either option do I avoid paying tax on the income in both countries?
The organization who is giving me the fellowship is recommending taking it in Canada directly, to avoid potential double taxation issues.
However from your comment, it seems that no matter how I accept the fellowship, it will be taxed in both the US and Canada? Am I understand this correctly?
Option 1 - fellowship paid to me in Canada. Pay federal taxes only to Canada. Do I then also pay taxes in US? Or would it then be considered for an exemption if it wasn't paid in the US?
Option 2 - fellowship paid in USA. Pay Canadian taxes first, then deduct Canadian tax credit from US taxes?
Either way it seems like a raw deal.
Basically, under either option do I avoid paying tax on the income in both countries?
You are a US resident alien, and are thus taxed on worldwide income, regardless of source. You can't get out of this because you live in US.
Why would you think you pay tax in both countries. You report the income in both countries. But you get credit for Cdn tax paid on your US return.
You need to have withholding in Canada, since that is the source of the income. The Cdn tax will cover your US tax, so no need to make estimated payments.
Why would you think you pay tax in both countries. You report the income in both countries. But you get credit for Cdn tax paid on your US return.
You need to have withholding in Canada, since that is the source of the income. The Cdn tax will cover your US tax, so no need to make estimated payments.
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
If anything, you can cliam an exemption from Cdn taxes, by the overseas employemnt tax credit, but that will merely increase your US taxation.
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
I think I may be double taxed because nothing is being withheld in Canada.
This is a fellowship that used to be considered non-taxable but has now been clarified as taxable. That means I need to at least make some kind of estimated tax payment in Canada, unless I expect to reduce my Canadian tax burden to zero. (see following)
If I pay Canadian taxes first, my tax burden would be zero by using education credits (so no estimated tax payments needed) but that would just lead me to pay the tax in the US, since from my understanding you can't claim a purported tax credit that you end up deducting away. So basically I would just be wasting my education tax credits.
The Canadian overseas employment tax credit does not apply to me because I was not a resident or deemed resident at any time in 2012 or going forward. They are also phasing out the OETC.
So either I need to 1) pay estimated tax payments to Canada and not claim education credit, 2) pay estimated to Canada, take some education credits and pay rest of estimated to USA, 3) pay nothing to Canada and pay full estimated to USA.
The third option seems like quite the headache but the one that will probably reduce my tax burden to the lowest level.
Maybe I should suck it up and hire an accountant.
This is a fellowship that used to be considered non-taxable but has now been clarified as taxable. That means I need to at least make some kind of estimated tax payment in Canada, unless I expect to reduce my Canadian tax burden to zero. (see following)
If I pay Canadian taxes first, my tax burden would be zero by using education credits (so no estimated tax payments needed) but that would just lead me to pay the tax in the US, since from my understanding you can't claim a purported tax credit that you end up deducting away. So basically I would just be wasting my education tax credits.
The Canadian overseas employment tax credit does not apply to me because I was not a resident or deemed resident at any time in 2012 or going forward. They are also phasing out the OETC.
So either I need to 1) pay estimated tax payments to Canada and not claim education credit, 2) pay estimated to Canada, take some education credits and pay rest of estimated to USA, 3) pay nothing to Canada and pay full estimated to USA.
The third option seems like quite the headache but the one that will probably reduce my tax burden to the lowest level.
Maybe I should suck it up and hire an accountant.
Estimated tax (as you call it) means nothing in the final analyis. All that matters is your tax return. Period.
So, if you feel that you have sufficint educatioon creits on your Cdn return to pay no tax, then you need not have any withholding.
This is a dileemma faced bu ALL former students who "partially" leave canadaL they end up having to use (you have no choice) education and tuition credits before any other credits. That is unlucky for you, but is a doirect result of your living in US.
But as a US citizen living in US, you have to report this income. If there are insufficient US tax breaks to reduce your tax to zerom then you are probably well advised to set aside a portion for year-end, or submit it quarterly.
So, really you have only 2 choices:
1. Have Cdn tax witheld by the university (or not)
2. Pay estimated tax to US, and state (to avoid penalty) or not.
then you file as above. No choice.
So, if you feel that you have sufficint educatioon creits on your Cdn return to pay no tax, then you need not have any withholding.
This is a dileemma faced bu ALL former students who "partially" leave canadaL they end up having to use (you have no choice) education and tuition credits before any other credits. That is unlucky for you, but is a doirect result of your living in US.
But as a US citizen living in US, you have to report this income. If there are insufficient US tax breaks to reduce your tax to zerom then you are probably well advised to set aside a portion for year-end, or submit it quarterly.
So, really you have only 2 choices:
1. Have Cdn tax witheld by the university (or not)
2. Pay estimated tax to US, and state (to avoid penalty) or not.
then you file as above. No choice.
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
I could always not take the credits in Canada to avoid pay tax in the US and save the credits for later.
I fully left Canada, I just am receiving this fellowship from the Canadian government to pursue research elsewhere.
Can I not use the taxes in the US as a foreign tax credit to the Canadian taxes and in that way use less tuition credits?
Maybe it is easier to just pay tax in Canada to avoid trying to figure out this whole situation.
If I paid to Canada full tax, the 22%, would I then be exempt from state and federal taxes on the money?
You are amazing Nelsona.
I fully left Canada, I just am receiving this fellowship from the Canadian government to pursue research elsewhere.
Can I not use the taxes in the US as a foreign tax credit to the Canadian taxes and in that way use less tuition credits?
Maybe it is easier to just pay tax in Canada to avoid trying to figure out this whole situation.
If I paid to Canada full tax, the 22%, would I then be exempt from state and federal taxes on the money?
You are amazing Nelsona.
You would never be able to use the US tax as a credit simply because the income is Cdn-sourced. canada doesn't allow foreign tax credit on Cdn-sourced income.
But even if you could, the tax form is designed to force you to take the tuition credit first, and then any foreign tax credit. In a sense you are lucky that the income was not us-sourced.
would you be "exempt" in US?
First lets use correct terms. None of your income is exempt in us. If you mean, will paying full Cdn tax mean you won't owe any us tax. maybe federally, but that would only be determined on your tax return, thru the foreign tax credit process. state taxes will apply as they generally do not give foreign tax credits.
and as to paying 22%, where are you getting this figure? You would only determine this on a tax return. there would be prov tax as well.
But even if you could, the tax form is designed to force you to take the tuition credit first, and then any foreign tax credit. In a sense you are lucky that the income was not us-sourced.
would you be "exempt" in US?
First lets use correct terms. None of your income is exempt in us. If you mean, will paying full Cdn tax mean you won't owe any us tax. maybe federally, but that would only be determined on your tax return, thru the foreign tax credit process. state taxes will apply as they generally do not give foreign tax credits.
and as to paying 22%, where are you getting this figure? You would only determine this on a tax return. there would be prov tax as well.
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
The 22% is based on the tax bracket that the fellowship falls after standard credits.
There would be no provincial taxes, as I am not a resident of Canada anymore.
If the income was US based I wouldn't owe anything to Canada at all.
Since this is my first year in this situation, I think I will just wait until 2014 and pay whatever small penalty there is for not making estimates tax payments because I have no way of knowing rigt now what my tax burden will be in Canada and thus consequently what I will owe in the US.
Thank you for all your help Nelsona.
There would be no provincial taxes, as I am not a resident of Canada anymore.
If the income was US based I wouldn't owe anything to Canada at all.
Since this is my first year in this situation, I think I will just wait until 2014 and pay whatever small penalty there is for not making estimates tax payments because I have no way of knowing rigt now what my tax burden will be in Canada and thus consequently what I will owe in the US.
Thank you for all your help Nelsona.
Fellowships would be subject to either non-resident surtax or provincial tax.
The NR guide explains this.
Just a final note on tuition credits. Since you have these CRA might not allow you to cherry pick the years in which you use it. So, you may have no choice but to reduce your taxable income ny your available credits as soon as you can.
I'll let you figure that one out. Let me know what you find.
The NR guide explains this.
Just a final note on tuition credits. Since you have these CRA might not allow you to cherry pick the years in which you use it. So, you may have no choice but to reduce your taxable income ny your available credits as soon as you can.
I'll let you figure that one out. Let me know what you find.
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