Passive category income of form 1116 USA

[CanadianFam2]

Hello,

I need some advice about my last year taxes 2012. I had to pay taxes in Canada and USA on a TN visa. It was my first year in USA. My spouse and I filled taxes in Canada as non-resident and as resident in USA. My only concern is about USA federal taxes. Note that in Canada tax form, we did not add the tax paid in the USA.

In the joint USA form, the accountant put the tax paid in Canada in two 1116 tax foreign credit forms. The first one was for income from work and unemployment. The second (filled as passive category income) was for Registered Retirement Savings Plan (RRSP) and money from actions. You have to know that we removed the money from our RRSP in Canada.

In the 1116 form of the RRSP (first page part 2), they put only 704$ as credit tax paid in Canada but we paid a lot more for the RRSP. It is like we have paid double taxes for the RRSP and the interest of the actions.
I would like to know why we can't put all the taxes paid in Canada for the RRSP in the USA form ? Also do you know if they used the tax treaty to avoid double taxes ?

Note that they used the 1040 form for joint taxes.

Thank you.

[nelsona]

I treat RRSP income as general limit, but that is not pertinet to your question at this point.

RRSP income is typically low taed in US, since only the portion after your arrival in US is taxable, so while you pauid 25% tax to Canada on the whole amount, your US tax is based only on the taxable portion.

Add to this that 1116 in limited to the average US tax you paid on the Cdn inocme, then the tax credit gets reduced.

Your results are typical. What some do is claim the tax as a deduction rather that credit, in the year it was paid.

[CanadianFam2]

Hi,

Thank you for your answer. However, I am not sure that I explained myself correctly. Here are more information.

First, these RRSP where withdrawn while I was in Canada before moving to the USA. In Canada , the bank hold taxes as an income (for resident) not as 25% (for nonresident).

Second, I understand that the first 1116 form on my income work was done as you said and it is OK that they did not take all the income tax I had paid in Canada. But, for the RRSP, they put in part 2 of the form 1116 an amount of 704$ as tax paid in Canada. I think that in your answer, you are talking more about page 2 part 3 of this form where you have to choose between two amounts : the percentage of the RRSP in USA taxes and the amount of taxes you paid in Canada . Usually, the smaller amount should be the percentage of RRSP in USA taxes but here, since they put only 704$ has taxes paid in Canada, the latter is the smaller one. Thus, I find it surprising that the accountant put only 704$ as taxes paid in Canada for that RRSP since it is not the case. I was wondering if maybe the accountant could not put more as tax paid on a RRSP. Do you know if there is such rule?

Thanks again!

[nelsona]

They should have put th eentire 25% NR tax as tax paid. But, as I said, you will not get full credit for the tax. In fact, since very little of your RRSP was taxble in US, almost none of the tax will be used.

So, if you use the tax as a credit, then all we are talking about is whta wll be carried forward, not any reduction in US tax for 2013.

Your wages should probably have been excluded using 2555.