I did not make the mistake to under-report. It is more like telly thought:
- I always declared to CRA my full US income including my 401K contributions. From the W-2, I used the amount of "social security wages" from the W-2 which includes 401K contributions;
- I believe the box "retirement plan" on my w-2 is not checked, but I need to confirm tonight;
- I contributed to a 401K on a voluntary basis, in order to get company match.
- If there was something I needed to fill on my CDN declaration to force a pension adjustment in Canada (PA) so that my allowable RRSP contributions limits are reduced by a factor of 10% of my income, this I have never done.
Did I miss something?
The hypothesis I made that perhaps CRA was responsible to figure out the adjustment by themselves was based on an old post of Nelson, unless I confuse the situation:
http://www.grasmick.com/board/?topic=topic2&msg=4718
.
Canadian TN commuting to US - how to file next year?
Moderator: Mark T Serbinski CA CPA
spocket, my comments about your responsibility are in reporting your 401(k) contributions as wages. That's were your responsibility ends.
It is up to CRA to calculate a PA. There is no provision for calculating your own PA: either your firm does it, or the CRA does it, no the taxpayer.
It is up to CRA to calculate a PA. There is no provision for calculating your own PA: either your firm does it, or the CRA does it, no the taxpayer.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Well
After investigating further, I find this in the instruction for the T1:
Line 206 - Pension adjustment
[[[Enter on line 206 the total of all amounts in box 52 of your
T4 slips, or box 34 of your T4A slips. {...} Note
If you live in Canada and you participated in a foreign
pension plan in 200(X), you may have to enter an amount
on this line. For details, contact us. ]]]
I guess this is where I should have put something.
After investigating further, I find this in the instruction for the T1:
Line 206 - Pension adjustment
[[[Enter on line 206 the total of all amounts in box 52 of your
T4 slips, or box 34 of your T4A slips. {...} Note
If you live in Canada and you participated in a foreign
pension plan in 200(X), you may have to enter an amount
on this line. For details, contact us. ]]]
I guess this is where I should have put something.
Found more details information about how to compute the amount to put in line 216. See page 16 of CRA document "Pension Adjustment Guide" found here:
http://www.cra-arc.gc.ca/E/pub/tg/t4084/t4084-e.pdf
The 10% method is easy to understand. The logic behind the alternative calculation using "money purchase limit" and PA offset is a bit unclear to me though.
---------------------------------------------------------
Prescribed Amounts for members of foreign plans
---------------------------------------------------------
If a Canadian resident was primarily employed outside
Canada by a foreign employer and was entitled to a benefit
under the foreign employer’s pension plan, an amount is
prescribed which reduces the deduction limit for the year in
a registered retirement savings plan (RRSP) equal to the
following.
For years 1994 to 1996, the individual’s prescribed amount
is the lesser of;
=the money purchase limit for the previous year minus
the previous year’s PA offset; and
=10% of the resident compensation for the previous year.
For years 1997 to 2004, the individual’s prescribed amount
is the lesser of;
=the money purchase limit for the previous year; and
=10% of the resident compensation for the previous year.
For years after 2004, the individual’s prescribed amount is
the lesser of;
=the money purchase limit for the preceding year minus
the previous year’s PA offset, and
=10% of the resident compensation for the preceding year.
If you have questions about calculating pension credits or
prescribed amounts for foreign plans, please contact our
Registered Plans Division.
---------------------------------------------------------
http://www.cra-arc.gc.ca/E/pub/tg/t4084/t4084-e.pdf
The 10% method is easy to understand. The logic behind the alternative calculation using "money purchase limit" and PA offset is a bit unclear to me though.
---------------------------------------------------------
Prescribed Amounts for members of foreign plans
---------------------------------------------------------
If a Canadian resident was primarily employed outside
Canada by a foreign employer and was entitled to a benefit
under the foreign employer’s pension plan, an amount is
prescribed which reduces the deduction limit for the year in
a registered retirement savings plan (RRSP) equal to the
following.
For years 1994 to 1996, the individual’s prescribed amount
is the lesser of;
=the money purchase limit for the previous year minus
the previous year’s PA offset; and
=10% of the resident compensation for the previous year.
For years 1997 to 2004, the individual’s prescribed amount
is the lesser of;
=the money purchase limit for the previous year; and
=10% of the resident compensation for the previous year.
For years after 2004, the individual’s prescribed amount is
the lesser of;
=the money purchase limit for the preceding year minus
the previous year’s PA offset, and
=10% of the resident compensation for the preceding year.
If you have questions about calculating pension credits or
prescribed amounts for foreign plans, please contact our
Registered Plans Division.
---------------------------------------------------------
After my calculations I get an eff. tax rate of 15.0% using MFJ 1040 method and itemizing deductions.
Using NR method, my tax rate was 17.3% but my husband's was only 15.1%. It's still a savings of course but I wonder if it's not as good for him because his income is from both Canada & US. Hopefully 2007 will be better.
The unfortunate thing is that this method didn't actually allow me to contribute any more to my RRSPs so I will have to carry forward some of my contributions until next year. :(
Thanks again guys!
Using NR method, my tax rate was 17.3% but my husband's was only 15.1%. It's still a savings of course but I wonder if it's not as good for him because his income is from both Canada & US. Hopefully 2007 will be better.
The unfortunate thing is that this method didn't actually allow me to contribute any more to my RRSPs so I will have to carry forward some of my contributions until next year. :(
Thanks again guys!
Same boat here: limited on RRSP that can help reduce my taxes in Canada. Therefore, for the coming years I plan on taking the mimimum amount of RRSP req to avoid paying additional taxes in Canada and using any further available funds to pay down my mortgage. That should keep me 'busy' for a while...
One anoying thing in Ontario too is the OHIP that now requires me to pay a ~750$ taxes each yr regardless of the amount of RRSP taken or taxes paid in the US. (this OHIP amount is applied after the foreign tax credit).
One anoying thing in Ontario too is the OHIP that now requires me to pay a ~750$ taxes each yr regardless of the amount of RRSP taken or taxes paid in the US. (this OHIP amount is applied after the foreign tax credit).
it may interest you to know that just above the cutoff at the bottom of the 35% bracket, there’s a strange little micro-bracket caused by a quirk of the OHIP premium. From $72k to $72.6k, the marginal rate including the OHIP premium is over 60%. I'm not sure if this is your neigbourhood but it may be worthwhile to contribute a bit extra to bring you below this if you're close. You'll go from $750 to $600.
I didn't think I contributed much to my RRSp but it turns out to have been too much. Now that my husband is working in Canada we'll make sure he does most of the contributing to his and a spousal RRSP...and yes, the extra mortgage payments. :)
I didn't think I contributed much to my RRSp but it turns out to have been too much. Now that my husband is working in Canada we'll make sure he does most of the contributing to his and a spousal RRSP...and yes, the extra mortgage payments. :)
nelsona, I am very confused regarding one of your replies in this post(attached at the end of this note)....I am a canadian citizen who lives in windsor and commutes to work in michigan....Every year I have been filing 1040NR......My wife does not work....According to this post, should I be filing 1040 instead and then offset my canadian taxes by buying RRSP's instead ? Don't you have to live in US for atleast 183 days to file 1040? .....Anxiously waiting for your reply....thanks
[quote="nelsona"]Geez, where to start...
I think your major problem has been filing a 1040NR. Even if neither of you have been living in the US, you should have been filing a joint 1040. You are allowed to by virtue of being cdn (and also by virtue of having spent enough actual days in US every year).
This would have lowered your US tax rate substantially, and this would have made RRSP worthwhile (and deductible) in canada.
1040NR was the absolute worst way for you to file :( , even if your husband was always working in Canada, which he wasn't.
even with him now remaining in Canada a joint treturn, or at the very least a non-discrimination Article XXV return would make most sense.
Ordinarily, I would be going back as many years as legally allowed, and refiling as married joint 1040, but unfortunately for you, this would probably result in you taking all the money refunded to you and sending it to CRA, since you did not contribute to your RRSP when you should have.
But, ecertainly for this year, while you still both work in US, I would be filing a true blue 1040 and contributing just enough RRSP to reduce my Cdn tax to NIL.[/quote]
[quote="nelsona"]Geez, where to start...
I think your major problem has been filing a 1040NR. Even if neither of you have been living in the US, you should have been filing a joint 1040. You are allowed to by virtue of being cdn (and also by virtue of having spent enough actual days in US every year).
This would have lowered your US tax rate substantially, and this would have made RRSP worthwhile (and deductible) in canada.
1040NR was the absolute worst way for you to file :( , even if your husband was always working in Canada, which he wasn't.
even with him now remaining in Canada a joint treturn, or at the very least a non-discrimination Article XXV return would make most sense.
Ordinarily, I would be going back as many years as legally allowed, and refiling as married joint 1040, but unfortunately for you, this would probably result in you taking all the money refunded to you and sending it to CRA, since you did not contribute to your RRSP when you should have.
But, ecertainly for this year, while you still both work in US, I would be filing a true blue 1040 and contributing just enough RRSP to reduce my Cdn tax to NIL.[/quote]
It is confusing.
As a comuter. you are entitled to file a 1040NR. You are not required to file a 1040, because you (a) reside in Canada, and (b) don't spend the requisite days in US. Even if you did spend more than 183 days the treaty would make you a CDn resident.
As a Cdn, you are allowed by treaty to file just like any other American in your situation would, ie, 1040 MFS or MFJ
As a MARRIED CDN, you are entitled to file a 'special' 1040NR in which the taxrate is calculated based on 1040MFJ, but only reporting US-sourced income on the 1040NR. Treaty clause XXV(4)
Your goal is to reduce your total US tax level (fed + state + FICA) to a level low enough to allow you to benefit from RRSP deduction, that is, to lower your US rate to at least below the Cdn/On tax rate without RRSP deduction.
As a comuter. you are entitled to file a 1040NR. You are not required to file a 1040, because you (a) reside in Canada, and (b) don't spend the requisite days in US. Even if you did spend more than 183 days the treaty would make you a CDn resident.
As a Cdn, you are allowed by treaty to file just like any other American in your situation would, ie, 1040 MFS or MFJ
As a MARRIED CDN, you are entitled to file a 'special' 1040NR in which the taxrate is calculated based on 1040MFJ, but only reporting US-sourced income on the 1040NR. Treaty clause XXV(4)
Your goal is to reduce your total US tax level (fed + state + FICA) to a level low enough to allow you to benefit from RRSP deduction, that is, to lower your US rate to at least below the Cdn/On tax rate without RRSP deduction.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks....Isn't it better to file 1040 instead of 1040NR as the tax rates are lower in 1040?.....1040NR tax tables have no provision for married-joint filers. Is that the reason why you mention the 'special 1040NR' ?.....what tax tables would I use to calculate my taxes? If I file 1040, I would be able to claim the standard deductions($10,000) for me and my wife......can I do that under Article XXV special 1040NR?....or do I just claim her as a personal exemption and file itemized deductions?
I have expained all these options several times elsewhere on this board.
If you file a 1040, you have all the rights, options and obligations of any other US taxpayer.
The special 1040NR has been described already in this very thread, so I won't belabour it.
If you file a 1040, you have all the rights, options and obligations of any other US taxpayer.
The special 1040NR has been described already in this very thread, so I won't belabour it.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best