Hi All,
Have a question regarding a relocation benefit I received last year when moving form Canada to US. I'm a little confused as to which return it goes under. Here is the situation.
I moved to US at the end of August 2015. In the middle of August I received $10k net to move. That money was transferred from the moving company to my US bank account. I was still living in Canada at the time when I received the tranfer.
Sometime in the middle of October I received an off-cycle paystub from the US company which showed the $10k benefit and the tax on top of it. It was a gross up so my net was still $10k and the total gross amount was about $14.5k or so.
Since the move was internal from Canada branch to US branch of the company I thought I would see the paystub from Canada since I received the money when I was still there. I asked my payroll and they explained that the relocation benefit came from the US branch (registered as separate company from the Canadian branch) and that's why I saw the paystub in US in October.
My question then is on how to properly report this. This is my current understanding and plan but please correct me if I'm wrong...
I'm filing my 1040NR and of course the W-2 which I received has the relocation benefit as part of my total income. The taxes that were taken out (gross up) are there as well. That's easy...
The tough part is the Canadian return. My plan is to report that $14.5k gross relocation amount (converted to CAD) and add it to my Canadian gross income. Then I will do a foreign tax credit and show that I already paid $4.5k of taxes on this amount in US and get some of that back. If CRA asks about it, I can show them that I received the $10k net amount in August (bank statement) while still in Canada and then show them the paystub from US in October that shows the $10k plus $4.5k or so of taxes taken out.
Is this the right way to do this? Please help me understand and let me know if I'm doing anything wrong. Thank you!
Relocation benefit - goes to Canada or US income?? Confused.
Moderator: Mark T Serbinski CA CPA
I would report it only on my US return, since that is when it was accrued to you.
I would not include it on my Cdn return.
Another reason to report it only on your US return, is that you can only claim the moving expenses on your US return. You need to claim the moving expenses that you paid to reduce the tax on that moving allowance.
But, just so you know how foreign tax credits work. If you were to report the 14.5K on your Cdn return, you could not simply report the 4.5K tax for the credit.
Foreign taxes are ALWAYS prorated over the tax that you paid for all income you earned in the year, as calculated on your return. It is never what is withheld that determines tax.
So, if the 14.5K was, say 20% of your total US income for the year, you would use 20% of the tax you determine on your US tax return (and 20% of the tax form your state tax return) and 20% of your fica (if that applied).
I would not include it on my Cdn return.
Another reason to report it only on your US return, is that you can only claim the moving expenses on your US return. You need to claim the moving expenses that you paid to reduce the tax on that moving allowance.
But, just so you know how foreign tax credits work. If you were to report the 14.5K on your Cdn return, you could not simply report the 4.5K tax for the credit.
Foreign taxes are ALWAYS prorated over the tax that you paid for all income you earned in the year, as calculated on your return. It is never what is withheld that determines tax.
So, if the 14.5K was, say 20% of your total US income for the year, you would use 20% of the tax you determine on your US tax return (and 20% of the tax form your state tax return) and 20% of your fica (if that applied).
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
Hi and thanks for your answer.
I was under the impression that the date of benefit would matter and not when I got the paystub for it and since I received the actual cash before I moved to US I would have to report on CDN return. However, if you believe that this is not the case then that's great! :)
I understand about the foreign credit and that's not what they withheld but rather the actual calculation during the actual return. That's fine.
One thing I wanted to clarify was the fact that the relocation benefit is not really moving benefit as define in tax code for either country. It was simply a lump sum of money in form of cash, just like any bonus or paycheck would be. So as far as taxing it is concerned, there is no special treatment for it as it is simply treated as any pay as you would normally get. I mention this because I only used a portion of it (like $5k) to do the actual move. The rest of it I kept and spent on other purposes. Not sure, but maybe if I'm understanding you correctly, I still could claim that $5k for moving purposes on form 1040NR as I kept all the receipts from u-haul, airlines, etc.
I was under the impression that the date of benefit would matter and not when I got the paystub for it and since I received the actual cash before I moved to US I would have to report on CDN return. However, if you believe that this is not the case then that's great! :)
I understand about the foreign credit and that's not what they withheld but rather the actual calculation during the actual return. That's fine.
One thing I wanted to clarify was the fact that the relocation benefit is not really moving benefit as define in tax code for either country. It was simply a lump sum of money in form of cash, just like any bonus or paycheck would be. So as far as taxing it is concerned, there is no special treatment for it as it is simply treated as any pay as you would normally get. I mention this because I only used a portion of it (like $5k) to do the actual move. The rest of it I kept and spent on other purposes. Not sure, but maybe if I'm understanding you correctly, I still could claim that $5k for moving purposes on form 1040NR as I kept all the receipts from u-haul, airlines, etc.
I understand what the payment was. That is why it is taxable. But you still get to claim eligible moving expenses on 1040 if you paid for them and were not SPECIFICALLY reimbursed.
Read the moving expense rules and see if the yapply to your situation.
Read the moving expense rules and see if the yapply to your situation.
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