Canadian citizen filing US 1040NR for taxes on US pension

[daboomer]

Hello,

My mother is non-resident alien, who once worked in the US but is Canadian and lives in Canada. She never lived in the US. She collects US pension income (US Social Sec and private pensions).

Could someone describe how to report this pension income? Does she need to file a 1040NR if the income has been declared in Canada? Does it appear solely on the Canadian return?

If not, is this US pension income tax exempt in the US due to treaty?

I think the following describes the pension income on the Canadian return, but not how to fill out the 1040NR.

https://turbotax.intuit.ca/tax-resource ... canada.jsp

Any information/advice on show to fill out the 1040NR and Canadian return to avoid double taxation would be appreciated.

Thanks.
Dave

[nelsona]

She should be having 15% witheld in US, and that is all that needs to be done.
Include the income on her Cdn return and the 15% tax withheld as a foreign tax credit.

the pension income is NOT tax exempt in US or canada. The SS is exempt in US, but includable at 85% in Canada.

[daboomer]

Thanks for the answer.

So, I don't need to file a 1040NR. If I go through the 1040NR and find there is a small balance owing, can I still omit the return and just pay the taxes in Canada?

Also, if I filed a 1040NR in prior years, and paid taxes to the US due to the small balance owing, can I file a Canadian T1-ADJ and use T2209 (Federal Foreign Tax Credit) to reclaim the paid taxes?

Thank you,
Dave

[nelsona]

Why would there be a "small balance owing"?

is your mother having tax withheld form her US pension by the US pension manager? That should be the exact amount, no more, no less. There is no calculation to be done on 1040NR, it is a flat 15% tax.
There is no other income that she needs to report on 1040NR.

[daboomer]

Hi nelsona,

Thanks for all of your assistance thus far. After working through the 1040NR calculations, I can kinda explain why a balance might be owing.

Inspecting one of the 1042-S slips showed the following boxes:

2 - Gross income, $7761
5 - Tax rate - 15.00%
7 - Federal tax withheld - $144

Not sure why the slip says 15%, but withholding tax is < 15% (~2%). If the tax withheld were at the correct rate (15%), there would be a refund owing in the US, according to the 1040NR.

Just wondering how to handle this on the Canadian return and/or US return if needed.

So, the question is, how should I avoid double taxation, and which is a valid choice? I've already filed the Canadian T1.
1) Pay the US taxes, and claim on Canadian side - File the 1040NR to pay the small balance owing (~$120) and make an adjustment to an already filed Canadian T1 General
2) Claim on the US side - Claim the Canadian taxes on the pension income somehow to reduce the payable US taxes using F1116 (Foreign Tax Credits)?
3) Not file the 1040NR at all because taxes were paid in Canada?

Or are all US sourced pensions taxed at 15% for non-resident aliens? Should I not use the tax tables to determine how much is payable?

Thanks for you patience,
David

[nelsona]

I already answered this. File the Cdn return, and use the tax withheld as a credit.

There is always dual taxation on pensions, but it should be equal to the Cdn rate.

[nelsona]

You can't claim Cdn taxes on US-source income, so forget 1116. doesn't apply for 1040NR.

When you say you prepared a 1040NR, putting her pension on page 1, what is the resulting tax? Whichever is the lower number, use this on the Cdn return as a credit.
if it is the 1040NR, then filie it and get refund. If it is the 1042-S, do nothing and report the withheld amount to CRA.

What have you done in past years?

[daboomer]

Hello nelsona,

I've calculated the payable tax according to the tax table and 15% rate, and the tax table is lower, so I guess I'll go with the tax table figure, file the 1040NR, pay the tax and claim the credit on the filed T1 as an adjustment. Do you think this will work?

In the past years, I've filed the US-sourced pensions in the US only, and not in Canada, but recently was CRA reassessed, so I have to file adjustments in Canada with the US pension income included on the Canadian T1 and the US taxes paid.

Thanks,
Dave

[nelsona]

I've given you the options.

It is more your Cdn returns you should be worried about.