Section 217 Filing of spousal income

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borderguy
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Joined: Tue Jan 09, 2007 1:44 am

Section 217 Filing of spousal income

Post by borderguy »

Living in US as dual.

I'm working thu the Section 217 process to see whether it is worthwhile to request some withholding tax back from Canada.
Bulk of income was CPP and a pension from Canada. Add only a 3k contract job and a 3k death benefit from father-in-law's passing.

If I only consider the above income sources, it would probably get me a refund. But the first few lines in the T1 Income tax and Benefit Return for Non-Residents and Deemed Residents of Canada asks for marital status and for spouse world income.

Elsewhere, I read that NelsonA leaves this section blank and does not claim a credit for spouse later on. Question is, if I check "Married", can I leave spouse SIN and income details blank?

Any other advice?
nelsona
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Post by nelsona »

You should put the SIN, but you don't need to put the income. You can if you wish, but if yiu don;t just be sure not to claim any spousal deduction.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

BTW remember that your CPP is no longer taxable in canada from the day you left.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
borderguy
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Post by borderguy »

[b]BTW remember that your CPP is no longer taxable in canada from the day you left[/b].

Thanks! I was aware of it... but I'm wondering whether I should leave blank the line 2 of Schedule C that asks for CPP OR, enter CPP on that line and and then look for someplace else to deduct it out again (tho looking at Schedules A, B, C, 1 and the "Federal Worksheet", I can't find any place to take CPP out again -- UNLESS it is line 256 of the T-1 -- Other Deductions).

Schedule C, Part 1 that asks you to report Eligible Section 217 Income also has a line 6 called "Death benefits". I've tried to research that line a bit too because I received a 3k death benefit from my father-in-law when he passed away last year. That transaction was completely on the US side of the border, so it would not seem to be included here. But I'm wondering whether I have to include it in world income because Canada allows you up to $10k as a death benefit without having to pay tax on it. Or do I have to include it on Schedule A, line 11, "Other foreign-source income"? You think I can simply not report that on the canadian forms?

Finally, I'm fairly confused about Step 1 of Federal Tax calculation. The only two deductions I'm claiming, I think is the Basic personal amt of 9600 and 2000 worth of pension income from the federal worksheet Looks like I add those two amts and take 15% of that as my line 29 Total federal non-refundable tax credit. That make sense?
nelsona
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Post by nelsona »

217 income refers to is of course Cdn sourced income. The death benefit CRA is taliking about is from CPP/OAS, I presume yours was not. But You de need to include the benefit on sched A, but not schedule C since it wasn't taxable in canada in the first place.

Same for your CPP. It isn't taxable after you left. so it doesn't qualify for 217. it does need to be on sched A, but not on sched C.

The effect of course is that your CPP and US death benefit become kinda taxable since it will be this sched A income that will be taxed under 217.


As to what deductions you can take, 217 allows for all deductions that you would normally get, with the proviso that your Cdn income must be 90% of your world income, or your deduction would be limited. Since your CCP and the death benefit are not considered Cdn, you may have trouble meeting this criteria. You'll need to do the math. I'd be using ufile. It is probably free Are you eligible for age amount, for medical expenses.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
borderguy
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Post by borderguy »

I spent some time digging into the General Income Tax and Benefit Guide for Non-Residents of Canada to ferret out the discussion on death benefit as per Schedule C, Part 1. CRA treats several cases, including when it is a CPP death benefit and when it is not. In all cases, they're looking for either a NR4, box 16 or 26 reporting or T4A, box 28 or T3 box 26. But they are silent on a death benefit from outside Canada. But the form DOES ask in Part 1 Schedule C only for Eligible section 217 income, in which case, the non-Canadian death benefit would not be included. On Schedule A, the only place where it WOULD be picked up then would be Other foreign-source income. So you're adding to World income, NOT Eligible section 217 income.

Treatment of CPP is kind of strange if you are right, Nelson. On the one hand, the Can-US Tax Agreement clearly exempts CPP. But if you file a Section 217 return, the CPP gets picked up in the Part1, Eligible section 217 income. But in Part 2, Section 1, you list the CPP and show that there is no Non-resident withholding tax rate. So it seems you would therefore incur a tax on the CPP via Schedule 1 (Tho I'm not sure).

But in any case, here's the funny thing --actually NOT FUNNY AT ALL: I went thru the calculations over the last couple of days -- Got the T-1, Schedule 1, Schedules A, B, C and Federal Worksheet as well as the Guides. And just to see if it was going to work for me, I cranked thru the exercise without including either the death benefit or the CPP. Those omissions put me right about at 90% Canadian to World income. Figured out the tax and it looked like I would save a few hundred bucks...UNTIL I got to Step 3 of Federal Tax Schedule 1, line 46 which calculates the Basic Federal Tax. OK...So far so good. Then the next line, 46A: SURTAX FOR NON-RESIDENTS AND DEEMED RESIDENTS OF CANADA: CALCULATE 48% OF THE AMT ON LINE 46 -- And reduce your credit by that much. ARE YOU KIDDIN' ME!!! Can Section 217 filing ever be worthwhile with that additional 48% reduction in your credit??

I thought I had read elsewhere, NelsonA, that Section 217 filing was one of the few effective ways to reduce the tax burden --for RRSP withdrawals. If I've calculated this thing anywhere near correctly, I don't see how 217 Section filing would help. (BTW, when I did include the death benefit and CPP, you can still use the 217 filing if you're under 90%, but you don't get the full "benefit")
nelsona
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Post by nelsona »

You have found exactly what I have said. You have basically quoted your first two paragraphs back to me.

217 is effective if you have less than 25,000 in income, and especially if you have less than $10,000 in income. Tha NR taxrate for anything above the basic deduction is still ~23%

And remember: you pension is only taxed at 15%, so you can't expect much benefit anyways.

The benefit is for those whose sole source of income is 25% taxed Cdn income -- like RRSP withdrawals for non-working spouses.

Remember, 217 is an election to treat your income tax 'as if' you still lived in canada. If you lived in canada, the taxrate on your pension would be more than 15%, and your CPP would be taxed as well. the death benefit is an anomaly for you this year, but would be part of your taxable income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
borderguy
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Post by borderguy »

For anybody else who considers the Section 217 Election at some time in the future: Receiving a Canadian pension and CPP as a non-working spouse prevents me from reducing taxes thru a Section 217 filing if I want to collapse my RRSP. Based on my understanding of what you've said and the exercises I've done lately, the Canadian pension and CPP kicks my Eligible Canadian income above 25k. Therefore, any RRSP withdrawals above that level will get hit with a marginal tax rate close to the 25% withholding on RRSP withdrawals.

So in retrospect, better financial planning would have suggested I hold off on drawing either the pension or CPP for a few years and instead make some 25k withdrawals from my RRSP.

To underscore your point on Section 217 advantages for RRSP withdrawals of 25k or less for non-working spouses -- it ONLY works if the non-working spouse does NOT have a Pension or CPP coming in, i.e., Non-working, Non-income of any kind.

So now the focus of my financial planning becomes: do I wait a couple more years to convert the RRSP to an RRIF to lower the withholding tax to 15% from 25 % which, at age 65 permits withdrawing the max of 10% of the total portfolio each year.

And the other focus is to try to understand how investing the RRSP withdrawal proceeds into International investments allows use of the Foreign Tax Credits --for the life of me, I find that area arcane and almost totally incomprehensible -- but I think it is the way the cross-border tax specialists advise clients to reduce the overall tax burden on RRSP withdrawals.
nelsona
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Post by nelsona »

Just to be clear, its not thae fact you have pension income in and of itself. its the fact you have ANY other income whatsoever.

Most non-working spuses in US, using the 217 method, are withdrawing 10-12K Cdn tax-free, using their basic amount, and the spouses medical expenses. Thy include inthere schedule A any interest or cap gains they are earning, whic lowers what they can take out tax-free.

But once they have any income at all, the benefits of 217 fade, and eventually vanish when they either p[ass 12K or exceed 10% foreign earnings.

Your CPP issue was just an added disadvantage.

Now, onto 2 other points you made:

"So now the focus of my financial planning becomes: do I wait a couple more years to convert the RRSP to an RRIF to lower the withholding tax to 15% from 25 % which, at age 65 permits withdrawing the max of 10% of the total portfolio each year"

You can convert to a rrif anytime you want. If you take the minimum withdrawals it will only be taxed at 15%, even before 65.

"And the other focus is to try to understand how investing the RRSP withdrawal proceeds into International investments allows use of the Foreign Tax Credits --for the life of me, I find that area arcane and almost totally incomprehensible -- but I think it is the way the cross-border tax specialists advise clients to reduce the overall tax burden on RRSP withdrawals"

This is a fallacy, based on an incorrect interpretation of what RRSP income is considered. It is PENSION income, thus categorized as general limitation income. Some, like keats, try to say that RRSP income is passive investment income. But this is ONLY if one NEVER used the tax deferral provisions such as 8891.

To use any leftover NR tax in future years, you need to generate GEN LIMIT income, not passive income. Your pension fits this bill. Your CPP is considered foreign gen limit income , which you can use on 1116

If you can lower your 15% Cdn tax on your pension and any future RRSP withdrawals, you may be able to use the credit in future.

But your best bet is to lower your cdn tax as low as possible, by getting to the lower RRIF rate to 15%.

But remember, the marginal NR taxarte, once you hit 10K is 23%, so your window for reducing tax below 15% disappears once your world income including Cdn exceeds about 22K.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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