Facts: one 1099-misc slip is ONLY income of USC-CDN dual citizen taxpayer (Sch C on 1040 and Business income on T1) and was issued by a US payer for services performed throughout the calendar year, exactly 4 months performed physically in the US (only) when taxpayer resided in USA (Jan-Apr) and exactly 8 months performed physically in Canada (only) when taxpayer resided in Canada (May-Dec).
I'm thinking to pro-rate both returns by doing the following for the 2015 1040/T1 reporting but seek your input as I'm not sure (please provide any and all applicable citations in your reply, tks)
1040: Report 4/12 SE tax on Sch SE ln 5 and claim CPT56 exemption on other 8/12, report 4/12 on Sch SE ln 6 (i.e., 50% of line 5 and this carries to 1040 ln 27)
T1: Report 8/12 CPP [T1 box 222 Deduction for CPP contributions on self-employment and T1 box 421 CPP contributions payable on self-employment]
With it being 1099-MISC, no CPP was withheld at source.
Is this the correct approach? If not, then what? Tks!
Basically if INSTEAD, as a base case for comparison, the dual citizen was in Canada the entire year with only one 1099-MISC slip for Canada-source services performed and no other income, taxpayer would pay CRA CPP (is that correct?) and claim CPT56 to IRS (same as if instead of the 1099-MISC, the taxpayer had one single W-2 and was only first reporting CPP on the T1 b/c none was withheld via payroll). Correct so far?
So, now split the yr, 4/12 in USA, 8/12 in Canada. Is the answer to simply prorate?
CPP and SE 1040-T1 part year in each country and CPT56
Moderator: Mark T Serbinski CA CPA
Putting the issue of W-2 aside, the your prorating example is correct.
The key is that Cdn RESIDENCE was established. Therefore income arising during that period is reportable (and any treaty issue about source and PE are thus not considered)
CPT are issued with "exact" starting dates, so this would serve nicely in determining what portion of SE tax would no longer be due, and the residency starting date would deterime what self-employment income should be reported in Canada, whith such income subject to both ends of CPP, paid when filing the Cdn return.
It would be a little different if Cdn residency has not been established, and the taxpayer would be liable for Cdn INCOME tax solely due to having established a PE by number of days present in Canada. In such case he would not pay CPP in Canada but would in US on the entire amount. He would of course get foreign tax credit towards the US income tax owed.
The key is that Cdn RESIDENCE was established. Therefore income arising during that period is reportable (and any treaty issue about source and PE are thus not considered)
CPT are issued with "exact" starting dates, so this would serve nicely in determining what portion of SE tax would no longer be due, and the residency starting date would deterime what self-employment income should be reported in Canada, whith such income subject to both ends of CPP, paid when filing the Cdn return.
It would be a little different if Cdn residency has not been established, and the taxpayer would be liable for Cdn INCOME tax solely due to having established a PE by number of days present in Canada. In such case he would not pay CPP in Canada but would in US on the entire amount. He would of course get foreign tax credit towards the US income tax owed.
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