Hi, I have recently discovered your forum. Iv'e read considerably & have enjoyed this venue for any number of different reasons, mostly though the accurate, clear responses to specific real life tax problems. So thx for your part in that.
My wife is a US citizen, PR in Canada and I am dual US/CA. We have lived & worked in CA since 1976 - no US income. We have (she has) inherited mineral rights from her deceased mother in North Dakota. Last year we received a 1099 from the company who drilled and now extracts oil on our section.
We've completed a dry run of our US taxes (joint file) using both the 1116 and 2225 - 2225 appears best for our purposes. We have tax to pay on the US income.
Question: US taxes are credited in Canada. Form 1099 shows the state taxes deducted at source - severance tax - may my wife also include the state tax w the federal tax as a credit on her T1 General Form?
US citizen, PR in Canada, oil royalty income from US
Moderator: Mark T Serbinski CA CPA
To specifically answer your question, both fed and state tax can be used towards the foreign tax credit on your Cdn return.
However, since you are filing a US federal return every year (right?), you cannot simply use the withheld tax as your final tax owing towrds the credit. ou must prepare and complete your 1040 to determine tax owing overall, and -- if there is any final tax liability, apportion that tax over your entire income.
For the state, only if there is no requirement to file a tax return in the state, you can use the withheld tax as final, however I'm pretty sure you will need to file a non-resident return in the state and determne if you really owe tax or not.
In other words, canada does not accept withheld tax as tax owing, when it knows you should be filing a return to reduce or elimiante tha ttax.
However, since you are filing a US federal return every year (right?), you cannot simply use the withheld tax as your final tax owing towrds the credit. ou must prepare and complete your 1040 to determine tax owing overall, and -- if there is any final tax liability, apportion that tax over your entire income.
For the state, only if there is no requirement to file a tax return in the state, you can use the withheld tax as final, however I'm pretty sure you will need to file a non-resident return in the state and determne if you really owe tax or not.
In other words, canada does not accept withheld tax as tax owing, when it knows you should be filing a return to reduce or elimiante tha ttax.
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
remember that 2555 only applies for foreign wages, and 1116 applies for foreign tax on foreign income (with some exceptions).
Unless you have been owing US tax in the past filings, I would think that unless we are talking 5-figure income, you should not have any fed tax to pay in US.
Unless your wages exceed the 255 limits, you can make quite a bit of US income withhout having to pay US tax.
Unless you have been owing US tax in the past filings, I would think that unless we are talking 5-figure income, you should not have any fed tax to pay in US.
Unless your wages exceed the 255 limits, you can make quite a bit of US income withhout having to pay US tax.
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
thx for your reply and your cautions/reminders ... appreciated
yes, we're aware ... but just through your forum, so recently. We will take care of back filling for both of us - 1040X's, RRSP's for sure
you're correct - $40K USD (5 figures) - w/o federal withholding tax - our plan is 1040 MFJ w two 2225's. so we need to get the check to the IRS soon to avoid interest - once filed I'll know the actual federal tax. I can add the state severance tax b/c that was withheld at source. Then I'll credit the total on the T1 General. Am I on the right track?
I don't understand your phrase 'apportion that tax ..."?
... and I don't understand 225 limits? ... if you mean 2225 - both my wife and I are well beneath $91K
yes, we're aware ... but just through your forum, so recently. We will take care of back filling for both of us - 1040X's, RRSP's for sure
you're correct - $40K USD (5 figures) - w/o federal withholding tax - our plan is 1040 MFJ w two 2225's. so we need to get the check to the IRS soon to avoid interest - once filed I'll know the actual federal tax. I can add the state severance tax b/c that was withheld at source. Then I'll credit the total on the T1 General. Am I on the right track?
I don't understand your phrase 'apportion that tax ..."?
... and I don't understand 225 limits? ... if you mean 2225 - both my wife and I are well beneath $91K
Note that just because tax is withheld at source (is there any other type of withholding) doesn't mean that it is the final tax. You would need to check with ND tax dept to see if this is allowable. I know its not for IRS.
I'll save you the trouble: Here is the ND tax dept:
"A nonresident of North Dakota who has a federal income tax filing requirement [that is you] and derives gross income from North Dakota (except income from interest, dividends, pensions and annuities) is REQUIRED to file a North Dakota individual income tax return. There are exceptions for certain Minnesota and Montana residents and for certain nonresidents employed by interstate commerce carriers.
"
If you were a Cdn citizen, you could choose to simply take the withholding as final (although, it is usually better to file and reduce the tax). Bur as US taxpayers, you do not have this option.
So. unless this income is dividend income you'll have to file an ND return and have the tax figured out.
My guess is that it is royalties.
I'll save you the trouble: Here is the ND tax dept:
"A nonresident of North Dakota who has a federal income tax filing requirement [that is you] and derives gross income from North Dakota (except income from interest, dividends, pensions and annuities) is REQUIRED to file a North Dakota individual income tax return. There are exceptions for certain Minnesota and Montana residents and for certain nonresidents employed by interstate commerce carriers.
"
If you were a Cdn citizen, you could choose to simply take the withholding as final (although, it is usually better to file and reduce the tax). Bur as US taxpayers, you do not have this option.
So. unless this income is dividend income you'll have to file an ND return and have the tax figured out.
My guess is that it is royalties.
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
many think that when determining what tax is apportionned to a type of income that the do it at the marginal rate. for example, if one adds $400 of interest to their income, the added tax is attributable to interst.
But fof foreign tax purposes, tax is apportioned over all the income, so if one paid $1000 tax on $40,000 total income, if $400 of that was interest, $10 of the tax would be attributed to interest.
But fof foreign tax purposes, tax is apportioned over all the income, so if one paid $1000 tax on $40,000 total income, if $400 of that was interest, $10 of the tax would be attributed to interest.
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
So I have recieved an official reply from ND. ND said that the witholding tax itemized on 1099 is an oil productiion tax and is not allowable toward income tax withholding. So no return and they informed me of what I owe. So that's completed. I now know Federal and State tax liability in USA.
W respect to CRA, I have included royalty income as 'other income' on Pg2 of the General Form and calculated through to taxable income.
Would explain how I claim the foreign tax credit on line 426 - I have read both T626 and IT270R3 ... I'm confused.
Thx in advance,
drmi
W respect to CRA, I have included royalty income as 'other income' on Pg2 of the General Form and calculated through to taxable income.
Would explain how I claim the foreign tax credit on line 426 - I have read both T626 and IT270R3 ... I'm confused.
Thx in advance,
drmi
oil royalty income from North dakota
HI again, I want to make sure that the North Dakota state severance tax (11%) that is withheld (this represents the bulk of my state tax liability) is allowable (deductable) in Canada as a foreign tax credit listed on line 405 by performing calculations from T2209 (line 1) and the excess allowable as a provincial foreign tax credit by performing calculations from form T2036 (line 1).
i.e. the form T2209 instructions list IRS federal income tax and state income tax - so that's very clear - is the ND severance tax treated the same?
Thx for your expertise and thank you a bunch for your time
drmi
i.e. the form T2209 instructions list IRS federal income tax and state income tax - so that's very clear - is the ND severance tax treated the same?
Thx for your expertise and thank you a bunch for your time
drmi
You get to clim all tax (fed and state) on the federal ftc calculation, and then carry over what's left of it to the prv ftc calcualtion
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
I have received an unexpected response from CRA. I completed my Cdn return in April as advised. I claimed my US state and federal tax paid at line 431. It is ~12%. ND state tax is 11% and the remainder was Federal tax.
Citing Article XII of the tax convention between Canada and US (the maximum amount of tax charged shall not exceed 10% of gross royalties) CRA has only accepted 10% of my claim and instructed me to contact the IRS for the remainder.
What am I missing here? ... or is this an error in judgment by CRA - mistaking severance tax for federal tax? I contacted ND and learned the 11% severance tax in ND is non-refundable.
Thank you in advance
drmi
Citing Article XII of the tax convention between Canada and US (the maximum amount of tax charged shall not exceed 10% of gross royalties) CRA has only accepted 10% of my claim and instructed me to contact the IRS for the remainder.
What am I missing here? ... or is this an error in judgment by CRA - mistaking severance tax for federal tax? I contacted ND and learned the 11% severance tax in ND is non-refundable.
Thank you in advance
drmi