Cdn Tax preparation question

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KenS
Posts: 13
Joined: Wed Oct 22, 2008 1:13 pm

Cdn Tax preparation question

Post by KenS »

Great board and good source of info!

Background: Lived in US for 8 years under TN. Wife moved back in Oct 07 and did not work rest of 2007. I am working in US until Jan 09. Did not know that I was considered a Cdn resident since Oct 07. Need to file Cdn taxes for 2007. No penalty as Wife has $0 income and I should not be owing any Cdn taxes. US 2007 taxes were filed on time.

Question:

1) Do I use the non residents package? Or the T1 General package?
2) For the foreign tax credit I can deduct Federal Tax, State Tax, and FICA paid I believe. Can I lump those three things together into line 437 of the T1 package (Total Income Tax Deducted)?
3) What documention do I need to submit to CRA with the package besides copy of 1040 and W2?
4) We also sold our house in 2007 and made a huge gain of $7,000 (sarcasm noted). How do I report that in the Cdn package and do I have to pay any taxes on the gain?

Thanks for taking the time and thank you in advance for your responses!
nelsona
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Post by nelsona »

First off, you are not necessarily a Cdn resident yet. Your wife is of course. But, by treaty, you may still have a preponderance of your 'vital interests' in US, and could thus still be considered a DEEMED non-resident, which means basically that you have not yet come back.

The biggetstfactor in making that determination would be how much time you spend in canada. Do you visit your wife OR does she visit you.

As you surmise, it may matter little in terms of tax, EXCEPT if you had a lot of investments that were worth more in 2007 than they will be in jan 2009. As you may know, your investments are as if sold and bought on the day you return. If your official return is in January, they will have the book value of january. If however your return was in 2007, you book value may be quite a bit higher, and thus you could be able to get much more future gains before being taxed.

Something to think about.

In any event, if we say that, yes, you did return in 2007, then
1. You would use the return for your province, and put an arrival date on page 1. Your Schedule 1 amounts would be prorated.
2. Your foreign taxes are as described. However you must use the foreign tax creit calculation to determine how much tax will be eligible. You will need to do this on both the fed schedule and use the remaining US tax on the Provincial schedule. You should be using a program llike ufile.ca to do this. It handles all this very well.
3. None other than what you said.
4. Principal residnce gains are not taxable in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
KenS
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Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Hi Nelsona,

Thanks for the quick and informative response. From Oct 07 to Dec 07, I spent a total of two weeks in Canada. From Jan 08 to Dec 08, I spent and will be spenting a total of 12 weeks in Canada. My wife do not fly down to the US. Would I be considered a deem non resident then because of that 183 days rule? If so, how would I go about filing my taxes for 2008? Would it be more advantageous to file as a resident of BC using T1 General or use the non resident package? Should I get official confirmation from CRA on my status?

I am going to give ufile a try and let you know how it turns out.

Thanks again!
KenS
Posts: 13
Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Hi Nelsona,

That ufile.ca service is pretty good! Got through with the interview and prorated the income, taxes paid plus the standard deductions that Quicktax didn't seem to do (probably user error). Great suggestion on the foreign tax credit calculation too, my head is still spinning from trying to follow the instructions. Quick question - Can foreign tax credit derived from employment carryforward to future years? I read that income from a business could but no mention of employment income. I don't think you can but just need some clarification.

I took the interviews under the assumption that I'll be a resident of Canada verus the deemed resident or non resident. Based on what you mentioned, it shouldn't make any difference in my case as I have no assets to speak of aside from my pittance of a 401K. Probably going to leave it alone in the States until 60.

From that fifth protocol treaty changes stated by Mark, can I deduct the 401K contribution from the Canadian taxes for 2008?

Thanks again!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You could never be a deemed resident, since you have a home and spouse in canada, regardless of how many days you spent there. The only thing you could be is deemed non-resident (DNR) or resident.

non-business Foreign tax credits can't be carried forward or backwards.

401(k) contribs are not yet deductible.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
KenS
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Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Thanks again for the quick response. Regarding the deemed non resident comment, do you recommend that I send in form NR73 before filing my 2007 taxes? Based on the results from Ufile, I have no taxes payable so I wouldn't be subject to any penalties.

The ties I have to Canada includes the following: Spouse, Child (born in 2008), Cdn bank account (for repayment of student loans), one Cdn credit card, and professional membership in Ontario. Based on these facts, would I be a resident in your opinion?

If I am considered a resident of Canada, can I file my US 2008 taxes normally using 1040? Should I be including my spouse's 2008 Cdn income or can I file separately (I filed a joint 1040 in 2007)? If I can file separately, should I be filing any US taxes for my spouse on her Cdn income?

Sorry for all the questions. This board is the only source of information I've been able to find that provides concrete assistance without filtering through all the taxation jargons.

Thanks again!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

I recommend (as most others) NEVER to send this NR form to CRA, unless and until they request it.

There is no question that you have the requisite ties to be a true resident. If it suits you, you certainly can make that claim. There are advantages to being resident in terms of RESP grants, the new TFSA, CCTB etc. And BC tax rate is not that high. It would be 'as if' you live in canada and commuted to your work in US.

But since you ALSO meet the IRS requirements to be treated as a tax resident (days of presence), you could, as others successfully have -- if it is to your advantage -- consider yourself a DNR (which is by definition someone who is considered resident in both countries, but just more ties in US than in canada). In practice this would simply meean that you have not yeat returned to canada (no arrival date, no arrival tax retun, no deemed acquisition, etc).

For IRS purposes, it generally doesn't matter how you file in Canada, you can file 1040. You would be best filinga joint return, to get the better tax rate, or, file a 1040NR using the treaty non-discrimination clause. She does not have to formally file in US anymore, unless it is joint with you.

On your assertion that you owe no tax to canada. given that your spuse does not work, if you owe no tax to canada, I fear that it might be because you are not filing your US taxes correctly and are overpaying there. unless you live in California, I somehow doubt that your US tax burden (if filing joint) would be lower than BC
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 »

Remember that on your 2007 Cdn return, your US taxes and income are prorated for the portion of the year in Canada, and that you don't get the full personal ammount for the year.

You should owe in Canada for 2007 and 2008 -- IF you do you US taxes properly.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
KenS
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Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Hi Nelsona,

Thanks again for another informative post. I used the ufile website and answered all the interview questions to the best of my knowledge. The US income (plus the 401K deductions) and standard deductions were all prorated by the ufile program (18% of total year). Didn't end up paying taxes primarily due to the foreign tax credit (Fed and State taxes plus FICA). I also did not need my charitable contributions for 2007 Cdn taxes (carryforward to 2008). I'll go through ufile and review the interview questions again, but do you think there is a mistake somewhere?

Thanks.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Not quite sure what you mean by your standard deductions (that is a US phrase).

As I said though, you are probably overpaying your US taxes. Are you filing jointly in US for 2007?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
KenS
Posts: 13
Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Sorry. Confusing the taxation jargon between the two countries. What I meant by the standard deduction was the personal amount and spouse amount. According to ufile, the cdn Fed taxes was offset by the foreign tax credit. The provincial tax was the same, Prov taxes was offset by the foreign tax credit. Not sure exactly the mechanics of that foreign tax credit calculation but that is what ufile reported.

For 2007, I did file jointly in the US reporting all incomes.

Going back to the deemed non resident question. I was told that because I accompany my wife when she went back to BC in Oct 2007, I am a factual resident even though I was only away from the US for a week. But then since I was living and working in the US, my center of vital interest was the States. So now, I don't know if I am a resident or a deemed non resident. Going bonkers as I don't want to skip paying taxes but at the same time, I don't want to pay more taxes than I need to. If I operate under the assumption that I am a deemed non resident (and not file 2007 and 2008 Cdn taxes), can CRA subsequently go back and charge me penalty plus interest for the 2008 taxes (assuming I owe no taxes for 2007)?

Thanks!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

The fact that you "accompanied" your wife has no meaning in the tax code.
Who 'told' you this. some CRA telphlunkie.
You are a deemed non-resident.

CRA can only charge you interst and penalties if you OWE tax. They can ask you to file if they say your were resident
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 »

Going back to your foreign tax credit. Did you use 18% of your US tax towards the credit? I'm having a tough time figuring how your US tax would be lower than your Cdn tax. must be because your put your arrival as so late.

What state do you live in?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
KenS
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Joined: Wed Oct 22, 2008 1:13 pm

Post by KenS »

Yes you are right. I called CRA and that was what they told me about the residency. That didn't sound right to me either, that I was considered a resident simply because I accompanied my wife to Canada.

To clarify my question, here is a hypothetical situation:

No Cdn taxes in 2008 was filed because I considered myself a deemed non resident. In 2009, I filed Cdn return stating I am resuming residency starting January 2009. Subsequently in 2009 CRA do in fact consider me a resident for 2008 due to wife being in Canada, and ask me to file 2008 taxes. Can CRA charge me penalty and interest on the 2008 taxes as I am past the April 30 due date for 2008? Or can I just pay the 2008 taxes owing in 2009 (April 30 2009)? (Sorry if this seem convoluted, I can't think of a better way to ask this.)

For the foreign tax credit, I did use 18% on both the US income and US taxes paid. Illinois is where I reside.

Thanks!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Remember that if you return in jan 2009, you will only file your return in april 2010 (not '09), so, if at that time they decide that your became resident in 2007, they will ask you to file 2007 (part) and 2008 (full).

If you ow for either of those years, the clock will go back to april 2008 (for 2007) and april 2009 (for 2008). So you would start with one year late penalty to start with.

Did your wife worked the first part of 2007? Her income must be considered in determining how much tax was yours and hers.

Just as an exercise (which will prepare you for 2008) do a full 2007 BC return, using all your 2007 income (and 401k contribs) and all your taxes. Let me know if this yeilds any Cdn tax owing. remember to accurately report your wife's income so as not to get more spousal credit than you should.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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