Prorate Income US/Canada

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frank1867
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Prorate Income US/Canada

Post by frank1867 » Wed Apr 06, 2016 11:48 pm

My spouse and I departed Canada in July. However, my employer still kept me on the Canadian payroll for August and September while I transitioned to the US payroll. From what I read, this portion of the income on my T4 should not be taxable in Canada because I performed the work while physically present in the US.

I called CRA and they seem to think I can deduct this portion on line 232 of 256; but the rep I spoke to didn't seem too sure. This makes sense to me, but was hoping someone could confirm if this can be done and on what line I can deduct it.

Also, what about EI and CPP? Can I get this back as an over payment for these two months? If so, how would I handle this on the Canadian return?

nelsona
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Post by nelsona » Thu Apr 07, 2016 9:03 am

256 would be the better line.
To get CPP and EI overpayment, I would prorate the CPP/EI you paid between the time worked in canad and US, and CLAIM the Cdn portion on lines 308 and 312, and REQUEST refund of the US portion on lines 448 and 450.

Then CRA willsort it out.

Remember to include the US-sourced wages form the T4 on your US return, and if claiming wage exemption on 2555 if filing full year 1040, to not exempt the US portion.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

frank1867
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Post by frank1867 » Thu Apr 07, 2016 9:38 am

Thank you so much, this is super helpful.

Yes was planning to do 1040 for full year with 2555. Will not meet Physical Presence test, so assume I must use Bona Fide residence test. I assume I will only be allowed a prorated portion of the exemption based on the number of days in the US correct?

My wages in Canada were pretty high and all of them would not be exempt if I can’t use the full exemption. If so, I’m guessing I would have to use 1116 in conjunction with 2555 for the portion of my wages that are not exempt?

When prorating the number of days between Canada and the US I assume I use work days and not vacation, Holiday's and sick days correct? What if I'm paid for them?

Would a letter from my employer indicating the number of days worked in the US vs. Canada help me support my claim on my departure return? Thanks again for your help!

nelsona
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Post by nelsona » Thu Apr 07, 2016 12:34 pm

Regardless of the test you use to qualify for 2555, you only get to prorate the exemption amount based on your days before abandoning your foreign residence, so you will only get about 2/12ths of the 2015 annual amount. The prorating would be calendars days before your departure date divided by 365. any excess Cdn-sorce wages would require 1116.

The prorating will be based on number of days worked before becoming non-resident and the number after. I'm assuming your Cdn departure date coincides with the time you started working in US exclusively. However you wish to document this is fine.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

frank1867
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Post by frank1867 » Thu Apr 07, 2016 1:05 pm

Thank you!

I departed Canada at the end of July, so wouldn't I get 7/12ths of the 2555 credit? You mentioned 2/12ths above? I'm guessing this was a typo?

Yes departure date July 30th and started working in US August 3rd. I was thinking of asking for the letter from my employer because CRA would have no idea that I worked those days in the US and might try to tax me on this income because it was reported on my T4.

So don't count vacation, sick days and Holiday's? I was paid for some of these days does that change anything?

nelsona
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Post by nelsona » Thu Apr 07, 2016 1:34 pm

Sorry, got mixed up with another concurrent poster. Yes 7/12ths.

Don't make it complicated. Get the paystub from the date nearest July 31, it will have Y-T-D info on it. Use this for wages, EI and CPP.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

frank1867
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Post by frank1867 » Thu Apr 07, 2016 2:14 pm

Ok that sounds much easier, thank you for all your help!

frank1867
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Post by frank1867 » Fri Apr 08, 2016 12:27 am

I found the applicable pay stub, which made things pretty easy. I just thought about one more thing that's confusing me. Do I prorate the amount of tax withheld at source and include the applicable amount on the 1040, or claim it all on line 437 of the Canadian return and recover the extra as a refund?

nelsona
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Post by nelsona » Fri Apr 08, 2016 8:00 am

Tax withheld at source is not part of the equation at all. Only the tax determined on your returns matters. withheld tax is what is used towards paying your tax bill in Canada and no where else.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

frank1867
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Post by frank1867 » Tue Jul 05, 2016 11:12 pm

Hi Nelsona,

I filed my return how you suggested and just received my Notice of Assessment today. Everything was pretty close to what I was expecting except for the CPP and EI overpayment. CRA allowed the deduction on line 256 for the US source income, but did not allow the majority of the CPP and EI overpayment for the corresponding US source income. They only allowed a very small CPP overpayment.

I provided CRA with a copy of my US return and a letter from my employer outlining the details of my employment. The language CRA used on the N of A was as follows:

"Based on the information you gave us, we changed your CPP overpayment and applied it against your total payable. If needed, we also changed your federal and Alberta claims for CPP or QPP contributions through employment."

"Based on the information you gave us, we disallowed your employment insurance (EI) overpayment. If needed, we also changed your federal and Alberta amounts for EI premiums through employment. For more information, see the explanation for line 450 in the General Income Tax and Benefit Guide."

"Since we allowed your federal amount for employment insurance (EI) premiums through employment, we calculated and gave you an Alberta amount for EI premiums through employment of..."

Any idea why they would not refund these amounts? Should I fight for this? It's only about $800 bucks, but I'm just curious as to why they would not refund these amounts.

Frank

nelsona
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Post by nelsona » Wed Jul 06, 2016 7:53 am

My guess is that EI and CPP are not proportionally collected, so the amount you pwed for the proportion you included was not a straight prorated amount.

As I said, CRA would sort those out, and they did.

Also, the treaty exempts some income from income tax, and not necessarily EI and CPP. This would be the case if, say, you went to Canada and worked for a few weeks, for less than $10000. The wages would be exempt by treaty for Cdn income tax, but EI and CPP may or may not be refunded based on their thresholds. This even happens tp seasonal workers living in Canada.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

frank1867
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Post by frank1867 » Thu Jul 07, 2016 10:01 am

Thanks for pointing me in the right direction.

I took a closer look at my pay stubs and it appears the majority of the CPP and EI was paid while I was still a resident of Canada, and almost none afterwards. My employer basically just wrote me a cheque for the work performed in the US, with no CPP or EI contributions withheld at source. I didn't notice this until now; I just assumed it was paid evenly.

I'm guessing CRA must have a way of confirming when the CPP and EI contributions were made and concluded none were made when I was a non-resident and this is the reason they denied the overpayment.

nelsona
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Post by nelsona » Thu Jul 07, 2016 10:39 am

Perhaps, but they also know how much CPP and EI should have been collected on the Cdn portion, and found that what you hade paid was correct for that amount too.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

CadCad
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Re: Prorate Income US/Canada

Post by CadCad » Thu Feb 21, 2019 1:05 am

Hi frank1867, Nelsona,

I'm in a similar situation (i.e. received Canadian income after moving to the US), CRA international line said to include the full amount from my T4 in my departure return. Reading this I realize this was not only inaccurate but quite detrimental to me since, on top of paying tax at a higher rate than in the US, it bumps up my marginal tax rate affecting the rate of deemed dispositions...

My question, in addition to claiming a deduction for my Canadian employment income after departure date on line 256, do I need to fill any extra form or provide an explanation through a statement?

Frank1867, you mentioned "I provided CRA with a copy of my US return and a letter from my employer outlining the details of my employment.", was that required or an extra layer of safety you included? I moved to the US with another employer so the closest thing would be my offer letter with its start date? Any link or resources that provides more details of how this exclusion works? An article in the US-CAN tax treaty benefit? I have been searching but no luck so far

Sorry for jumping into this old thread, hopefully you are still getting notifications or someone else in the community can share their insights if they have run into this.

CadCad
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Re: Prorate Income US/Canada

Post by CadCad » Thu Feb 21, 2019 11:17 pm

From my research, the most relevant information I have found is on article XV.2 on the US-CAN tax treaty which from my interpretation only applies if income is below 10K or a resident of Canada for 6 or less months the year before/after (i.e. any twelve-month period commencing or ending in the fiscal year concerned)

From: https://www.fin.gc.ca/treaties-conventi ... is-eng.asp

It states:

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; or

(b) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and the remuneration is not paid by, or on behalf of, a person who is a resident of that other State and is not borne by a permanent establishment in that other State.

Am I interpreting this wrong? Or am I looking at the wrong place?

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