401k not deductible （just received letter from cra）
Moderator: Mark T Serbinski CA CPA
401k not deductible （just received letter from cra）
I worked full time in USA and came back to Canada occassionally to see my wife and kid in Canada. We do not live in boarder. I have filed tax to irs as US resident and to CRA as a deemed resident in Canada. reporting my US income inluding 401k. I deduct my 401k using my RSP limit. But just received a letter from CRA asking big number dollar because they did not acknowledge my 401k as deductible… reason is i did not live in boarder… is that correct? That means I am double tax by Canada and USA...
First off, you were NOT a deemed resident of Canada. You were, if anything a Full resident of Canada (if you commuted) or a deemed NON-resident (if you commuted only occasionally.
The only way CRA grants 401(k) as a deduction is if you are a resident of Canada who commutes and you file form RC268. Did you file this form?
CRA defines a commuter as one who commutes daily or weekly.
If you did and they are denying that you are a commuter, then you should file as a deemed non-resident and exclude the US wages altogether. This would be like filing as a non-residety, since you meet the definition of US resident.
CRA cannot on the one hand say you were not a commuter (ie you lived in US full time) and on the other hand say you lived in Canada, too. The US Canada treaty prevents this.
The only way CRA grants 401(k) as a deduction is if you are a resident of Canada who commutes and you file form RC268. Did you file this form?
CRA defines a commuter as one who commutes daily or weekly.
If you did and they are denying that you are a commuter, then you should file as a deemed non-resident and exclude the US wages altogether. This would be like filing as a non-residety, since you meet the definition of US resident.
CRA cannot on the one hand say you were not a commuter (ie you lived in US full time) and on the other hand say you lived in Canada, too. The US Canada treaty prevents this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
If all this fails, remember that 401(K) contributions that you were not able to deduct while resident of Canada will eventually come out of your 40(k) free of cdn tax.
So, always keep track of any 401(k)/IRA contribs you make that you are not able to deduct on your Cdn return.
So, always keep track of any 401(k)/IRA contribs you make that you are not able to deduct on your Cdn return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Yes, I did submit the RC268 form. but they say, I am not a commuter as I can not go home every day.
Since i have already file the tax, I am not sure if I can change to be deemed non-resident. How can I confirm which type of "resident" I am..... I have the family tie in Canada.
[quote="nelsona"]First off, you were NOT a deemed resident of Canada. You were, if anything a Full resident of Canada (if you commuted) or a deemed NON-resident (if you commuted only occasionally.
The only way CRA grants 401(k) as a deduction is if you are a resident of Canada who commutes and you file form RC268. Did you file this form?
CRA defines a commuter as one who commutes daily or weekly.
If you did and they are denying that you are a commuter, then you should file as a deemed non-resident and exclude the US wages altogether. This would be like filing as a non-residety, since you meet the definition of US resident.
CRA cannot on the one hand say you were not a commuter (ie you lived in US full time) and on the other hand say you lived in Canada, too. The US Canada treaty prevents this.[/quote]
Since i have already file the tax, I am not sure if I can change to be deemed non-resident. How can I confirm which type of "resident" I am..... I have the family tie in Canada.
[quote="nelsona"]First off, you were NOT a deemed resident of Canada. You were, if anything a Full resident of Canada (if you commuted) or a deemed NON-resident (if you commuted only occasionally.
The only way CRA grants 401(k) as a deduction is if you are a resident of Canada who commutes and you file form RC268. Did you file this form?
CRA defines a commuter as one who commutes daily or weekly.
If you did and they are denying that you are a commuter, then you should file as a deemed non-resident and exclude the US wages altogether. This would be like filing as a non-residety, since you meet the definition of US resident.
CRA cannot on the one hand say you were not a commuter (ie you lived in US full time) and on the other hand say you lived in Canada, too. The US Canada treaty prevents this.[/quote]
Do you meet the US requirement of resident (ie. did you met SPT)? Do you have a place to live in US? How often do you visit Canada? How far does your family live from your US home? Have you established yourself in US? You would probably fill out an NR-73 for CRA to get this through.
A commuter can also commute weekly. It would be weird to say that because you didn't spend enough time in Canada, you can't claim that you were a non-resident.
A "Factual resident" is one who has residential ties in Canada while outside. But a factual resident who meets the treaty requirements for tax residency in another country, is considered a "deemed non-resident", and would file accordingly. You could certainly amend your return if this was the case.
I've never heard of a RC268 denial since this started about 8 years ago.
Going forward, you may just have to do what was done before the treaty granted 401(K) deductions to residents of Canada: put in the minimum to get company matching, and then use your RRSP, keeping track of the non-deducted 401(k) contributions for later.
Sucks though.
A commuter can also commute weekly. It would be weird to say that because you didn't spend enough time in Canada, you can't claim that you were a non-resident.
A "Factual resident" is one who has residential ties in Canada while outside. But a factual resident who meets the treaty requirements for tax residency in another country, is considered a "deemed non-resident", and would file accordingly. You could certainly amend your return if this was the case.
I've never heard of a RC268 denial since this started about 8 years ago.
Going forward, you may just have to do what was done before the treaty granted 401(K) deductions to residents of Canada: put in the minimum to get company matching, and then use your RRSP, keeping track of the non-deducted 401(k) contributions for later.
Sucks though.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Btw, the wording of the treaty clauses that apply to this (various parts of Article XVIII) have NO conditions attached (other than the limits for an RRSP), so their ruling is in direct violation of the treaty. There is no requirement that you commute.
Either you are a Cdn resident entitled to claim the deduction (while reporting the income), or you are not a resident, in which case you should not even report the income.
If CRA says that you are factual resident of Canada (by NR73 determination), then they cannot deny your deduction, as calculated on RC268. If they determine that you are a deemed non-resident, then you don't report the income anyway.
I would be fighting this.
Either you are a Cdn resident entitled to claim the deduction (while reporting the income), or you are not a resident, in which case you should not even report the income.
If CRA says that you are factual resident of Canada (by NR73 determination), then they cannot deny your deduction, as calculated on RC268. If they determine that you are a deemed non-resident, then you don't report the income anyway.
I would be fighting this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing