The IRS/CRA Income Tax Thread

[jhunjhun 7]

Hello zyggy, I would like to know if it's alright to use the basic personal amount in federal tax schedule 1 without prorating it based on the number of days I spent in Canada before until I left. Someone told me before that I can use the basic personal( 9600) instead of doing the prorate. What do you think? Thanks!

You have to prorate it...

But someone have done this before and it was OK. I'm thinking of not doing the prorate because my income was 100% from Canada and I didn't work here in USA. Also, this will be alright as long as I'm going to state in the letter that I wish to claim all my tax credits for the whole year? How true is this?

[Texanadian 10]

Hello zyggy, I would like to know if it's alright to use the basic personal amount in federal tax schedule 1 without prorating it based on the number of days I spent in Canada before until I left. Someone told me before that I can use the basic personal( 9600) instead of doing the prorate. What do you think? Thanks!

For the part you live in Canada, you pro rate it.

For the part where you live in the USA, if over 90% of your worldwide income is Canadian sourced, you can use the full year's personal exemption amount. Also if you had zero income after moving to the USA, you can use the full basic personal amounts as well.

I'd advise everybody to read up on the Emigrants and Income Tax 2008 pdf file. It's T4056 that you want to search for.

[jhunjhun 7]

Hello zyggy, I would like to know if it's alright to use the basic personal amount in federal tax schedule 1 without prorating it based on the number of days I spent in Canada before until I left. Someone told me before that I can use the basic personal( 9600) instead of doing the prorate. What do you think? Thanks!

For the part you live in Canada, you pro rate it.

For the part where you live in the USA, if over 90% of your worldwide income is Canadian sourced, you can use the full year's personal exemption amount. Also if you had zero income after moving to the USA, you can use the full basic personal amounts as well.

I'd advise everybody to read up on the Emigrants and Income Tax 2008 pdf file. It's T4056 that you want to search for.

Confusing! Let's say that my gross income in Canada was $13,000.... however, part of the year I was a resident in Canada I earned $9,565 (resident) and after I left I earned $3,436 ( non-resident). Therefore, my total world income was $13,000 and 100% from Canadian source.

Here is my question: Do I need to prorate them? How can I do this? If my income will be pro-rated based on the # of days I spent in Canada for yr 2008, how about my income from Canada while I was here in USA? I cannot do them at the same time, one will be prorated and the other will not. How can I do it? There's no way to do this, right?

[zyggy 9]

Hello zyggy, I would like to know if it's alright to use the basic personal amount in federal tax schedule 1 without prorating it based on the number of days I spent in Canada before until I left. Someone told me before that I can use the basic personal( 9600) instead of doing the prorate. What do you think? Thanks!

For the part you live in Canada, you pro rate it.

For the part where you live in the USA, if over 90% of your worldwide income is Canadian sourced, you can use the full year's personal exemption amount. Also if you had zero income after moving to the USA, you can use the full basic personal amounts as well.

I'd advise everybody to read up on the Emigrants and Income Tax 2008 pdf file. It's T4056 that you want to search for.

THe only way they can know that is you opt to file as Section 217, since one would be filing based on their worldwide income for the entire year. If the above were the case, it may be the most beneficial to file as Section 217 anyways.

If you're not filing as Section 217, you're likely going to have to prorate the exemptions.

Jhun's example is probably a good one to show that it would likely be more beneficial to file as Section 217. Jhun, I suggest you do it both ways and file the way which gives you the better tax treatment. My gut feel is Section 217 is the better option.

Edited February 24, 2009 by zyggy

[Darryl 0]

Hi Zyggy,

You asked that I post this in the thread so here it is. ANy help is appreciated. I've seen your posts and you seem to be the resident expert here on US/Canadian taxes. I'm wondering if you may be able to help me with a couple of questions about an RRSP sale (while living is US). My wife and I have been living in the US for about 2 years now and in 2008 we sold our last RRSP in Canada. We paid the 25% non resident tax to the Candian gov't.

So to do our US tax return we've been getting mixed information about the amount we record on the US return. Some people say you only have to record the gains on the RRSP between the day you left Canada and the day you sold them, and other people say you have to list the entire amount of the sale (in US dollars) on your US return as income on the 1040 - so a $10 000 sale = $10 000 of extra income which really affects our return.

I'm hoping its just the gains, as this would make more sense considering we've already paid the 25% non-resident tax to Canada and (from what I've read about the 2008 tax treaty) the US treats it at that point like an IRA - so when you cash it out you just pay the capital gains. We went to two accountants and they both did it opposite - one just the gains, the other the full amount. The difference in our return is amlost $2000 so we want to make sure we're doing it the right way. Any information you could pass along would be really helpful and greatly appreciated!

Thank you

Darryl

[Texanadian 10]

Confusing! Let's say that my gross income in Canada was $13,000.... however, part of the year I was a resident in Canada I earned $9,565 (resident) and after I left I earned $3,436 ( non-resident). Therefore, my total world income was $13,000 and 100% from Canadian source.

The 13,000 is fine. The question is about the $3436. Since $3436 was 100% Canadian source income during the non-resident part of the year, it would qualify for the full basic personal deductions.

The Section 217 is also worth reading about.

Edited February 25, 2009 by Texanadian

[daisylynn 0]

Another question...

I'm trying to do my Canadian taxes now. I read up on the form that Texanadian referred to (thanks for posting that btw-it was VERY helpful!) I see how I am suppose to prorate for the federal form (base amount) and did that with no problem. But I can't find the number to prorate for the provincial (Ontario). I see where it says it needs to be prorated and that the same rules as the federal apply, but it also says that the number for prorating may be different. Where do I find that?

[daisylynn 0]

nm found it!

[jhunjhun 7]

Confusing! Let's say that my gross income in Canada was $13,000.... however, part of the year I was a resident in Canada I earned $9,565 (resident) and after I left I earned $3,436 ( non-resident). Therefore, my total world income was $13,000 and 100% from Canadian source.

The 13,000 is fine. The question is about the $3436. Since $3436 was 100% Canadian source income during the non-resident part of the year, it would qualify for the full basic personal deductions.

The Section 217 is also worth reading about.

I'm getting so confused. How can I do this? If i'm using my province tax form, how about 217? the 217 is for non-resident. Is it possible that I can use 217 and claim the full basic deductions even I'm using the resident tax form? I can't find anything in form 217 where to put my $3436 income while I was here in US. My income was not tax as a non-resident while I was here in USA. How can I deal with this?

Which one do I need to prorate? My base income amount or the basic personal amount?

Also, I can't find below where would my income goes to:

What income is eligible for this

election?

This election applies to certain types of Canadian-source

income which you receive after you leave Canada,

including:

■ Old Age Security pension;

■ Canada Pension Plan or Quebec Pension Plan benefits;

■ most superannuation and pension benefits;

■ most registered retirement savings plan payments;

■ most registered retirement income fund payments;

■ death benefits;

■ Employment Insurance benefits;

■ certain retiring allowances;

■ registered supplementary unemployment benefit plan

payments;

■ most deferred profit-sharing plan payments;

■ amounts received from a retirement compensation

arrangement, or the purchase price of an interest in a

retirement compensation arrangement;

■ prescribed benefits under a government assistance

program; and

■ Auto Pact benefits.

[daisylynn 0]

Ok I'm back.

So, after spending TOO much time trying to figure out our Canadian taxes last night, I'm so frustrated! It shows we are getting back a HUGE amount less then we were expecting. It's about 1/6 of what we would normally have gotten back (bases on the last several years). I knew it would be less, but that much less seems like a lot. Is that normal?

After doing them, I've come up with yet another question. I prorated the federal as well as the provincial. The number of days I used was the time we were actually in Canada. We physically left on May 31, so that's what I counted to. But then I realized that dh's work was still paying him for 9 weeks after we left. We were already in the US but it was still getting deposited into our Canadian bank account. They weren't taking off the 25% NR tax, just taxing it as normal. So, should I (or can I even) use the number of days up until we stopped receiving checks from them? Or do I have to use the time until we actually left Canada? Is this why it seems all messed up or would it even make a difference?

Is there something I'm missing?

[jhunjhun 7]

Is non-refundable tax credit is benefial only if a person owed taxes back to the goverment? How about the non-residents that still has excess non-refundable tax credit? Can they claim them? Is this will be refunded back to them? Or the tax deducted based on the income earned will be refunded in full amount?

Federal non-refundable tax credits

As an emigrant, you may be limited in the amount you can

claim this year for certain federal non-refundable tax

credits.

To determine the total you can claim, add:

■ the amount for each federal non-refundable tax credit

that applies to the part of 2008 that you were a resident of

Canada (as outlined in the next section); and

■ the amount for each federal non-refundable tax credit

that applies to the part of 2008 that you were not a

resident of Canada (as outlined on page 9).

Keep in mind that the total you can claim for each federal

non-refundable tax credit cannot be more than what you

could have claimed if you had been a resident of Canada

for the whole year.

[zyggy 9]

Hi Zyggy,

You asked that I post this in the thread so here it is. ANy help is appreciated. I've seen your posts and you seem to be the resident expert here on US/Canadian taxes. I'm wondering if you may be able to help me with a couple of questions about an RRSP sale (while living is US). My wife and I have been living in the US for about 2 years now and in 2008 we sold our last RRSP in Canada. We paid the 25% non resident tax to the Candian gov't.

So to do our US tax return we've been getting mixed information about the amount we record on the US return. Some people say you only have to record the gains on the RRSP between the day you left Canada and the day you sold them, and other people say you have to list the entire amount of the sale (in US dollars) on your US return as income on the 1040 - so a $10 000 sale = $10 000 of extra income which really affects our return.

I'm hoping its just the gains, as this would make more sense considering we've already paid the 25% non-resident tax to Canada and (from what I've read about the 2008 tax treaty) the US treats it at that point like an IRA - so when you cash it out you just pay the capital gains. We went to two accountants and they both did it opposite - one just the gains, the other the full amount. The difference in our return is amlost $2000 so we want to make sure we're doing it the right way. Any information you could pass along would be really helpful and greatly appreciated!

Thank you

Darryl

Darryl,

You need to use Form 8891 to declare the amount you have in your RRSP's. You also have to declare the amount that you took as a distribution from the RRSP. As you can see from this form, any distribution you take from an RRSP is fully taxable as pension income.

In the US if you take a distribution on an Traditional IRA, the full amount of the distribution is taxable. I don't know where you got the idea that only the gains were taxable.

For a Roth IRA, the gains are not taxable and the distribution is not taxable either since the contribution was using funds that were already taxed.

You would take the 25% non-resident tax that Canada took out as a foreign tax credit using Form 1116.

[zyggy 9]

Okay.. let's clear the air a little bit. Several people have inquired about getting payment from their employers several weeks after that have terminated their employment in Canada.

If the payments were treated as if you were a resident (i.e. no 25% taken out), that amount should be treated for tax purposes as a severance that was paid on the date of termination, even though they may pay it out to you over a certain period of time for either your or their convenience.

I'm going to read up over the next few days to fully answer the other questions from jhun and daisylynn

[jhunjhun 7]

Okay.. let's clear the air a little bit. Several people have inquired about getting payment from their employers several weeks after that have terminated their employment in Canada.

If the payments were treated as if you were a resident (i.e. no 25% taken out), that amount should be treated for tax purposes as a severance that was paid on the date of termination, even though they may pay it out to you over a certain period of time for either your or their convenience.

I'm going to read up over the next few days to fully answer the other questions from jhun and daisylynn

Thank you so much zyggy! Your the best! Now my tax return seems going well for me....

[zyggy 9]

Okay.. I've looked into things and that is what I have found.

Most non-refundable tax credits must be prorated based on the days you were in Canada. There are exceptions where the proration is not based on days, but can be used as long as your worldwide income is at least 90% Canada sourced income. Those credits are as follows:

■ Canada Pension Plan or Quebec Pension Plan

contributions;

■ Employment Insurance premiums;

■ the disability amount (for yourself);

■ interest paid on loans for post-secondary education made

to you under the Canada Student Loans Act, the Canada

Student Financial Assistance Act, or similar provincial or

territorial government laws;

■ the tuition amount (for yourself); and

■ donations and gifts.

If you are taking the full amount, you must attach a statement that outlines your Canada SOurce Income and your worldwide income and show that your Canada source income is at least 90%.

The personal exemption must be reduced by the days in Canada vs. days not resident. I do not see anywhere in the booklet where it states that the personal exemption can be taken in full with the 90% canada source income anount. I only see that it applys for the circumstances outlined above.

Daisylynn.. the only pitfall that I have seen for Ontario is that you must pay the OHIP premium in full even if you have been in Canada for only a portion of the year.

Edited February 26, 2009 by zyggy