US citizen, Canadian resident, Canadian spouse

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

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BenR
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Joined: Mon Apr 12, 2010 5:04 pm

US citizen, Canadian resident, Canadian spouse

Post by BenR »

I am a dual US. Canadian citizen living full time in Canada. My wife is Canadian only but has an ITIN (more on this later).

If I understand other posts correctly, I can file as Married Filing Separately, and claim my wife as a dependent, as long as she has no US source income, correct? (and she does not have to file a US return)

Here's the question: My wife receives US Social Security by virtue of being married to me. Although this is obviously US-sourced income, she would not enter it on a 1040 if she were submittng one because it is taxed only in Canada by tax treaty. So does she still qualify as not receiving any US-source income?
nelsona
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Post by nelsona »

I would say yes, but, really, if in doubt, why claim her. You are not owing any US tax either way, are you? Or if you are, you are still paying more Cdn tax on that IUS income, aren't you?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

I have other US income - company pensions, IRA distributions, and dividends/interest - and I never seem to be able to wipe out the US taxes completely.
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

Nelson, I try to do my taxes based on your recommended procedure, but as usual the devil is in the details. I wonder if I have the details correct. I have tried to research this thoroughly in the forum but still get confused at times.

Each return is done with all income from both countries without accounting for foreign tax credits, creating a baseline.

Then the Canada return is done, taking credits for taxes paid on US sourced income on baseline US return.

Then US return is completed, taking credits for Canadian taxes on Canadian sourced income on baseline Canada return.

I compute the amount of tax per individual source by dividing the amount of income from that source by the by the total income to get a percentage, then multiplying the total tax by that percentage to compute the dollar amount of tax attributed to that source.

I use TurboTax Canada and TaxAct US.

My income consists of:

Canadian Sources:
$25K from part-time employment
Canada Pension & Old Age Security
Two RRIFs

US sources:
Social Security
Two company pensions
IRA
Interest & dividends from investments (capital gains in some years)

Social Security is only reflected on the Canada return, as are CPP & OAS. I believe capital gains from investments (when present) can be re-sourced to Canadian return, correct?

It seems to currently be to my advantage to use Form 2555 for my salaried income and 1116 for other items. Whoever designed Form 1116 is a sadist.

I document treaty positions taken using Form 8833.

Questions:

I never seem to be able to totally wipe out US tax owed, but the total of Canada + US is always quite a bit less than the Canada tax owing in the baseline return. Is this to be expected given my situation, or am I missing something?

I do not include Social Security in the US baseline because it is only taxed in Canada. Is this correct procedure?

If I have capital gains in a given year and re-source those to Canada, do I include them in the baseline or not?

As always, thanks in advance for your great support.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Your baseline returns should Both include all income, except for SS CPP OAS which should be on your cdn return only. Actuallly my preferred method is to include those social security on 1040 as gross with zero net.
Each should have all the pension, investment income etc without regard for source.
Then, only the US tax (determined on your baseline 1040) attributable to your US pension income and your US dividends should be used on your cdn returns as foreign tax credit.nothing else is eligible for FTC on your cdn return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

Thanks, Nelson. It is very confusing, I'm glad you're able and willing to clear things up.

One last question: Is the procedure that you outline documented anywhere on a CRA and/or IRS site? I'm not doubting you at all, just wondering if there's comething I can cite if either of them ever were to chellenge me on my return.
nelsona
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Post by nelsona »

There is an 'explanation, in the FTC folio on car website. The key CTOP: cdn tax otherwise payable
But how I outlined is correct
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

Thanks, Nelson. I have no doubt at all that your method is correct, this is just in case I ever have to justify my use of it it to the CRA.
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

I thought I saw an answer to this once but have been searching for it and am unable to turn it up.

When I do my baseline US return (same scenario as above with multiple US income sources), if I am planning to use Form 2555, do I include that in the baseline run or not?
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

"Baselines" are run without foreign tax credit only. Anything else is included in the baseline, including 2555.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
BenR
Posts: 20
Joined: Mon Apr 12, 2010 5:04 pm

Post by BenR »

Thanks, Nelson, that's what I thought, good to get it confirmed.
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