Sourcing of income for dual US/CA citizen, Canada-resident

[nohairleft]

I may have missed your point, but folio S5-F2-C1 (at least in 1.22) seems to refer to the 15% limit only in the context of income derived from property.

In terms of the hint of "put any denied credit as a deduction on line 256", my point was that "any" denied credit, by my reading, probably does not include denied credits for wage income in the sub-10k scenario we were talking about. I couldn't tell from your previous two posts if you were agreeing, disagreeing, or (perhaps more likely) gently suggesting that I go and do more homework. :-)

After diving in again, my read is:

The deductions from income on line 256 would only seem to be made available in the treaty via XXIV(5), which is not applicable to wage income. Following instead the applicable procedures in XXIV(4)(b) and XXIV(6) would lead to a zero credit allowed on the Canadian side, and thus the US would be obliged to give a re-sourced credit. I don't see any other data in (4) or (6) permitting deductions from income (vs tax) on the Canadian side.

I have also been looking at some references in the ITA, and the closest I can find is subsection 20(12)...but that too appears to have a limitation of income from "business or property". Unless their exact definition of "business" (which I have admittedly not yet been able to track down) is more expansive than mine, this would seem to exclude employment income too.

The summary is that I have not found anything yet that would permit me to take a line 256 deduction for the disallowed wage credit.

[nelsona]

I do see what you are getting at, but for practical purposes, no distinction is made.

Since Para(4) covers "any" type of income, for practical purposes, "any" US tax on US income that is taxed in US solely due to US citizenship.

I believe that the three types of income specified in Para(5), are the only ones in which a specific limit (15%) in menationed, rather than completely denied, or completely accepted. Thus the exact methodology is spelled out.

But, it has been generally accepted that US dividends, US interests (which as always been zero-rated by IRS rules), exempt wages, and business income not arising from a US fixed based (ie US contaractor work) get both the deduction on the Cdn return, and the re-sourcing treatment in US.

By the way,the line for these deduction is 232, not 256 as I previously said.
The notation one puts on line 232 is "US tax credit denied by Article XXIV(4) or (5)". Never heard of a problem doing this.

Don't forget, the taxrate that US citizens living in Canada usually pay, even on US income is very small after initial foreign tax credit or FEIE is taken. So, the non-allowed US tax is almost never an issue.

For example, How much inomce did you have last year, and how much US tax do you calculate after using 1116 and/or 2555? Then consider pro-rating that tax by the proprtion your US wages under 10K over your total income? We are not talking huge deductions here.

[nelsona]

But I will grant you that by the treaty, not all income that is eligible to be re-sourced by treaty for tax credit purposes mentionned in 4(b) and 5(c) is also granted the "extra" benefit of Cdn "deduction in computing income" from Para. 5.

Its just in the rare cases that the deduction is taken on other types of income, I've never heard of a denial. Probably becuase the limiting factor is rarely the 15% limit that kicks in, (actually only dividends are 15%, interst is 0% and royalties is 10%), it is the taxpayers calculated effective US tax rate.