Hi,
For my rental property in canada, I am doing tax return like below. Need your help to tell me if I am doing anything wrong:
For CRA:
- Filling Statement of Real Estate Rentals
- Filling Section 216
After expenses and CCA, I have to pay some taxes to CRA.
For IRA:
- Filling Schedule C (With CCA, Various expenses + property taxes).
Question:
- Should I fill up form 1116 (Foreign tax credit) for the tax paid to CRA OR I should put that tax as expense under schedule C? I guess 1116 will provide me better return because it is tax credit. Am I right?
- My TAX Software does not support 1116. So I have to add the output of 1116 to 1040 line 48 manually and adjust 1040. Does 1116 output have any implication on State tax?
- Property is owned by me and my spouse, so I guess we have to fill up two 1116. Correct?
Need your advise.
Thanks.
Tax procedure for rental property in Canada
Moderator: Mark T Serbinski CA CPA
Any Cdn tax you determine from Section 216 would be used on form 1116, against the US tax for that renatl income. It is not a choice.
Couple of questions: I'm surprised that you would still owe on 216, since CRA usually requires more withholding than you need, not less.
I would be using software that supports 1116. You will need this going forward and I have never known of one that doesn't geive 1116. pay the $7.00 extra so that the calcs are done right and so the carry forward is tracked properly.
Whether you CCA in canadashould be determined by whether or not you "use up" all the Cdn tax or not on 1116. If you have no carryforward, you might want to consider lowering your Cdn CCA to the point where you have exactly the same credit as tax. Just an idea (and all the more reason to use good software). If uyou already are calculating a carry forward, then stick with CCA in Canada.
As to state tax, that depends on the state. Your tax software will do it correctly.
Are you getting the point that you should be using full version software?
Couple of questions: I'm surprised that you would still owe on 216, since CRA usually requires more withholding than you need, not less.
I would be using software that supports 1116. You will need this going forward and I have never known of one that doesn't geive 1116. pay the $7.00 extra so that the calcs are done right and so the carry forward is tracked properly.
Whether you CCA in canadashould be determined by whether or not you "use up" all the Cdn tax or not on 1116. If you have no carryforward, you might want to consider lowering your Cdn CCA to the point where you have exactly the same credit as tax. Just an idea (and all the more reason to use good software). If uyou already are calculating a carry forward, then stick with CCA in Canada.
As to state tax, that depends on the state. Your tax software will do it correctly.
Are you getting the point that you should be using full version software?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks for your response.
As an example: CRA withhold $6000. But 216 is providing me $5500 return. So technically I am paying $500 to CRA as tax.
Should I report $500 in 1116 or the entire withhold amount $6000? provided I am still waiting for PROFORMA from CRA and most probably have to submit US tax before Canadian tax?
By carry forward do you mean Undepreciated capital cost (UCC) at the start of the year?
last year was my first time return and due to some additional property expenses I was able to CCA in a way that I paid no tax to CRA. This year even after 4% CCA I have to pay some tax. So, I need 1116 this year. I guess it will be usual scenario going forward.
Regarding Tax SW, can you pls recommend any?
As an example: CRA withhold $6000. But 216 is providing me $5500 return. So technically I am paying $500 to CRA as tax.
Should I report $500 in 1116 or the entire withhold amount $6000? provided I am still waiting for PROFORMA from CRA and most probably have to submit US tax before Canadian tax?
By carry forward do you mean Undepreciated capital cost (UCC) at the start of the year?
last year was my first time return and due to some additional property expenses I was able to CCA in a way that I paid no tax to CRA. This year even after 4% CCA I have to pay some tax. So, I need 1116 this year. I guess it will be usual scenario going forward.
Regarding Tax SW, can you pls recommend any?
"As an example: CRA withhold $6000. But 216 is providing me $5500 return. So technically I am paying $500 to CRA as tax."
Ah, when you said I have to pay some taxes, I took that to mean you owe more. You are getting a refund from 216, which is better (Consider filing an NR6 so that they will lower withholding further).
You only submit what you actually accrued in Canada, which is $500.
I would recommend any of the online versions other than what you are using (or upgrade from the version you are using).
Keep apllying the principle I outlined: try to CCA in Canada just enough to get an even 1116 (the minimum CCA that gives you no carryforward on 1116).
Ah, when you said I have to pay some taxes, I took that to mean you owe more. You are getting a refund from 216, which is better (Consider filing an NR6 so that they will lower withholding further).
You only submit what you actually accrued in Canada, which is $500.
I would recommend any of the online versions other than what you are using (or upgrade from the version you are using).
Keep apllying the principle I outlined: try to CCA in Canada just enough to get an even 1116 (the minimum CCA that gives you no carryforward on 1116).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
This is the first time I will be claiming foreign tax credit. I am using TAXACT and it is asking something about "AMT". Not sure what should be my selection. Can you please help on this? I guess I have to select the first option.
Thanks.
"Alternative Minimum Tax - Simplified Election Foreign Tax Credit
The simplified foreign tax credit election for the alternative minimum tax (AMT) allows you to skip Part I of the AMT Form 1116. Depending on the situation this may be an advantage or a disadvantage. Part III is then completed largely with numbers from the Form 1116 for the regular income tax. This election must be made the first year that the AMT foreign tax credit is taken following 1997. Once the election is made it can only be changed with the permission of the IRS.
Please indicate your status related to the election below.
Check if this is the first year the AMT foreign tax credit is being claimed.
Check if the simplified election was made on a previous return.
Check to remove either of the above"
Thanks.
"Alternative Minimum Tax - Simplified Election Foreign Tax Credit
The simplified foreign tax credit election for the alternative minimum tax (AMT) allows you to skip Part I of the AMT Form 1116. Depending on the situation this may be an advantage or a disadvantage. Part III is then completed largely with numbers from the Form 1116 for the regular income tax. This election must be made the first year that the AMT foreign tax credit is taken following 1997. Once the election is made it can only be changed with the permission of the IRS.
Please indicate your status related to the election below.
Check if this is the first year the AMT foreign tax credit is being claimed.
Check if the simplified election was made on a previous return.
Check to remove either of the above"