401 k contributions for tax 2008

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knight03
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401 k contributions for tax 2008

Post by knight03 »

I thought we were going to be able to deduct our 401k contributions this year? Am I mistaken? I thought that treaty recognizing this was approved and effective. If it is deductible now can you point me to the right spot in the Canadian tax forms to include it.

Thank you.
nelsona
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Post by nelsona »

The treaty protocol was quite clear that provisons would only take effect in the tax year aftyer approval. Approval occured in december 2008.

So 2009 is the first tax year these measures take effect.
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nelsona
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Post by nelsona »

But for future reference, the method you will use to clim the 401(k) contributions will be by simply not adding them to your wages reported on W-2.

Recall that currently, your wage box on W-2 does not include your 401(K). CRA instructs US employees to ADD the contributions to the ir wages. This instruction is found for line 104.

So, in 2009, you will simply report the figure in your W-2 wage box, and not add the 401(k) ammount.
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knight03
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Post by knight03 »

thank you for clarifying that.
dorins
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401k deduction for 2008

Post by dorins »

Sorry, Nelson ... reading http://forums.serbinski.com/viewtopic.php?t=2739
I was under the impression that the protocol (although signed in Dec 08) is applicable since 1/1/2008.

Can you please (re) clarify ?




[quote="nelsona"]The treaty protocol was quite clear that provisons would only take effect in the tax year aftyer approval. Approval occured in december 2008.

So 2009 is the first tax year these measures take effect.[/quote]
Cheers
nelsona
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Post by nelsona »

His post is incorrect.

If you read the article he wroteo nhis website, he correctly states 401(k) issue takes effect 01/01/09.
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nelsona
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Post by nelsona »

Remember that the 'protocol' does not take effect as a whole on any particular date. Eachsection has its own effective date as outlined in the protocol.
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dorins
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401 k contributions for tax 2008

Post by dorins »

Thank you, nelsona.

I was pulling my hair trying to find whether I just do not include the 401k contribution or include and then indicate it as a "foreign" RRSP. That would be for the 2009 tax year, though, and as you indicated elsewhere, I would just not include it in the foreign income.

Thanx



[quote="nelsona"]His post is incorrect.

If you read the article he wroteo nhis website, he correctly states 401(k) issue takes effect 01/01/09.[/quote]
Cheers
nelsona
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Post by nelsona »

The exact method of claiming this deduction has not been speeled out by CRA. Since the 401(K) deduction is limited in the same way that RRSP deductions are, it very well may be a deduction on the RRSP line, after determining the limit.

Remember that any worker in US can contribute the maximum to theor 401(K), it is not income dependent. So canada, by the treaty, can limit the deduction to an ammount similar to what a Cdn worker arning the same gross wage would be allowed.
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dorins
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401(k) deduction allowed in 2009 in Canada

Post by dorins »

Unless this was posted elsewhere ...

CRA still wants use to include 401(k) amounts in Line 104 - Foreign employment income "â€￾ If this is the case, you must add these contributions to your foreign employment income on line 104 on your Canadian return. Based on the new Protocol between Canada and the United-States, these contributions may be deductible. For more information, see line 207 - Registered pension plan (RPP) deduction."

In the end, there is a form RC268: Contributions to a United States Retirement Plan by a Commuter from Canada (http://www.cra-arc.gc.ca/E/pbg/tf/rc268/README.html) that spells out the deduction allowed and contribution limit (10% of annual resident compensation).
Cheers
nelsona
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Post by nelsona »

Yes, thanks for posting; I was about to do a write up on that.

Just to be clear though, the contribution limit is NOT 10% of the annual compensation.

The limit is the lower of your US limit and your RRSP contribution room (minus any other RRSP contribution), which will continue to be calculated yearly.

It's the "prescribed amount", which is analogous to the Pension Adjustment for Cdn plans, that comes to 10% of wages (this is as it was in the past). But this in not the contribution limit -- although it will in the long run certainly cut down one's yearly RRSP contribution room.
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dorins
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Post by dorins »

I understood the distinction, thank you.

1) In the "Calculating your deduction" section the form compares the available window available after the 2009 RRSP deductions with my 401k contribution - not what the employer matches, correct?

2) Also, since my contributions to the US retirement plan are also excluded from my US income calculation, lines 1 and 2 are the same. Correct?

3) For the "Prescribed amount", the resident compensation excludes "amounts that are exempt from income tax in Canada by virtue of the Canada-U.S. Tax Convention". This means that it excludes the 401k contributions?

4) Is my 401k (I own company common shares) a "money purchase plan"?

Thank you again


[quote="nelsona"]Yes, thanks for posting; I was about to do a write up on that.

Just to be clear though, the contribution limit is NOT 10% of the annual compensation.

The limit is the lower of your US limit and your RRSP contribution room (minus any other RRSP contribution), which will continue to be calculated yearly.

It's the "prescribed amount", which is analogous to the Pension Adjustment for Cdn plans, that comes to 10% of wages (this is as it was in the past). But this in not the contribution limit -- although it will in the long run certainly cut down one's yearly RRSP contribution room.[/quote]
Cheers
nelsona
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Post by nelsona »

1. Correct. What the employer matches is what you will use in the "prescribed amount"calculation, instaed of trhe 10% figure.

2. This line applies only to those who make contributions that are not deductible from their US taxes. N/A for you.

3. As well as your 401(k), do you have an old-fashioned pension with them? If not, then these lines do not apply to you. Your prescribed amount is simply you employers contributions to your 401(k) plus his contribution to any "Cash balance" plan he has for you. These would both be considered money purchase plans.

4. In this case, yes.
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dorins
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401k/1040 Proforma

Post by dorins »

Nelsona:

Now that the 401 (k) is recognized in Canada, does this mean that in the simple Canadian tax form I used to generate the 1040 ProForma, the 401 (k) will actually lower my Canadian tax burden as a foreign tax to be used in the Proforma?. Before the Treaty took effect, I would show the entire Canadian tax owed, without the benefit of the 401 (k).

Thanks
Cheers
nelsona
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Post by nelsona »

Your proforma should NOT have any Cdn tax as a credit. This is specifically not allowed. You can use tax PAID as a deduction on Schedule A, but it must be tax paid in 2009, not owed or accrued for 2009. It can be the tax you paid on your 2008 Cdn tax return.
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