Canadian TN commuting to US - how to file next year?

nelsona · Post by **nelsona** » Wed Apr 04, 2007 12:09 pm

When you make the pro forma, you assume that ALL income is from the US, so no foreign tax credits apply. You may use the Cdn tax paid however as a deduction ONLY.

nelsona · Post by **nelsona** » Wed Apr 04, 2007 12:20 pm

XXV(4)(a) "the â€œtotal United States taxâ€ shall be determined as if all the income of the individual and his spouse arose in the United States"

... and by Cdn tax paid, I mean taxes actaully submitted to the CRA during the calendar year (and UI and CPP) and not refundable to you.

So this can include any tax payment you made last April for 2005, but cannot include either the Cdn tax you owe now for 2006, or what will be refunded if you overpaid.

telly1 · Post by **telly1** » Wed Apr 04, 2007 12:25 pm

Oh ok...thanks!

Can I just deduct the taxes paid right off the income before entering it in the income section (i.e. $20,000 - $8,000 = $12,000)? Also, can I include CPP & EI? Also, can I include taxes owed in Canada on our rental properties?

Thanks again nelsona. You're awesome!

nelsona · Post by **nelsona** » Wed Apr 04, 2007 12:29 pm

Did you rerad what I said:

You may take the Cdn tax PAID in 2006 and which will not be refunded to you only .

And it is a deduction, meaning you put it on your proforma schedule A as foreign tax paid.

nelsona · Post by **nelsona** » Wed Apr 04, 2007 12:31 pm

CPP and EI are income, and for the purposes of the pro forma, arise in US.

EVERYTHING you made goes on the pro forma as US-sourced income.

telly1 · Post by **telly1** » Wed Apr 04, 2007 12:51 pm

Sorry nelsona, I did not see your 2nd response. I get it now. When I was referring to CPP & EI I meant as taxes paid in Canada (not income) but now I understand. Thanks!

I'm concerned about one thing. My pro forma shows $3800 owing but the two NR's show $1000 owing and a $300 return. I know I am really only concerned with the eff. tax rate on the pro forma so it shouldn't matter but I just don't want the IRS to look at it all and bill me for the $3800. Should I be concerned about that?

nelsona · Post by **nelsona** » Wed Apr 04, 2007 1:09 pm

Not quite sure what you mean. You aren't calculating tax owing on the pro forma. You are calculating taxrate. You don't go past line 63 on 1040. Remove any entries below line 63, and put a cross thru the entire bottom of that page if you wish.

You should clearly indicate on the top of the 1040 that it is a "pro forma 1040 in accordance with US-canada treaty aticle XXV(4)", or some such.

I would also be attaching one copy to EACH of your 1040NRs.

telly1 · Post by **telly1** » Wed Apr 04, 2007 1:29 pm

"Not quite sure what you mean. You aren't calculating tax owing on the pro forma. You are calculating taxrate. You don't go past line 63 on 1040. Remove any entries below line 63, and put a cross thru the entire bottom of that page if you wish. "

I used TurboTax for the pro forma, so all the info is there and the 1040 is complete but I will white it out past line 63 - thanks! I will still need to include schedule A & E (we have rental income) and all the corresponding worksheets, including depreciation though right?

I am only declaring the treaty based position for myself as the eff. tax rate was lower using the regualr NR for my husband but I will definitely attach it to mine!

nelsona · Post by **nelsona** » Wed Apr 04, 2007 1:39 pm

That is correct.

telly1 · Post by **telly1** » Wed Apr 04, 2007 1:41 pm

Also, I noticed the following in Article XXV:

(b) a deficit of the spouse shall not be taken into account in determining taxable income.

If my husband produced a net loss on a rental property. after depreciation, should it be excluded? Overall of course, he has a positive net income so I think it's ok.

nelsona · Post by **nelsona** » Wed Apr 04, 2007 3:18 pm

If the rental income turns out to be negative, his half can't be used on pro forma

nelsona · Post by **nelsona** » Wed Apr 04, 2007 3:19 pm

... I would limit it to net overall loss, not property by property.

nelsona · Post by **nelsona** » Wed Apr 04, 2007 3:27 pm

... one could also interpret "deficit" as the spouse over-all income, since the term deficit occurs nowhere else in the treaty.

So, it could be argues that as long as the spouse adds to your over-all income, all of it is reported, gains and losses.

I do not think that it means that only transactions that produced income can be included, while those that produced losses cannot.

The clause is meant to prevent the spouse with US wages from claiming a deduction for the losses non-reporting spouse.

telly1 · Post by **telly1** » Thu Apr 05, 2007 11:42 am

"I do not think that it means that only transactions that produced income can be included, while those that produced losses cannot.

The clause is meant to prevent the spouse with US wages from claiming a deduction for the losses non-reporting spouse."

That seems to make sense to me as well after I reread it. I will leave the rental loss in. Thanks.

telly1 · Post by **telly1** » Thu Apr 05, 2007 12:49 pm

On my pro-forma 1040, I need to adjust the amount of tax paid (to Canada on Canadian wages) to add the amount of tax paid in April 2006. The problem is, I can't seem to recall where I entered this information in TurboTax. I see the amount on Schedule A, line 8 (Other taxes) but I can't seem to find where I entered it in the interview section to adjust it. I know this sounds like a basic (and annoying) question but any help would be greatly appreciated.