Any Canadian experts out there?

[thomtax]

I have a new client whose income last year was from Canada. He received the Canadian version of the W2.

I have the federal return from last year. But there was no Canadian return filed for last year. They filed it as Foreign Income and Form 1116.

I would appreciate any and all comments about how this was handled.

As usual, thanks in advance.

LT

[Uncle]

Initial question

First, was the taxpayer a Canadian resident? The taxpayer could be a resident, a non-resident, a deemed resident, or a factual resident. How many days did the client spend in Canada during the year?

[Burke]

I have a new client whose income last year was from Canada. He received the Canadian version of the W2. I have the federal return from last year. But there was no Canadian return filed for last year. They filed it as Foreign Income and Form 1116. I would appreciate any and all comments about how this was handled.
LT

It's not clear which year you are referring to, but I am assuming this is a US citizen, had wage income from Canada on a T-4, and that you have to convert it to USD for 2012? If he was a resident of Canada long enough, he may have qualified for Foreign Income Exclusion, Form 2555. Is this what happened last year? Don't really understand "they filed it as foreign income and Form 1116." If all of the income was excluded, how did 1116 come into play?
Sounds like a Canadian income tax return should have been done as well, especially if he was actually a US resident, only worked in Canada briefly, as they would have withheld CA taxes. Most of the time, in that case, the TP is paid in US dollars and there would be no foreign income exclusion.

[thomtax]

Thanks for the replies. To be honest, I was afraid that everyone was gone and was just trying to see if it was worth going into detail. I am at home right now, but will get the exact details in the morning and post them, rather than trying to go from memory right now.

Again - thanks all.

LT

[thomtax]

Following are the exact details.

Client is US citizen and resident working in Canada for part of the year.

Client brought in T4 and 2011 return so that I could file for extension. I am questioning whether it was filed correctly or not and want to get it right for this year.

T4 shows Income 73166.40 Income tax deducted 25461.59

Previous preparer put the 73166 on line 21 under the heading of Foreign Income.

Form 1116 was prepared showing on line 1a Wages 73166
Line 6 is calculated to be 10295
Going through the various calculation Part iv Line 30 is 7089

This 7089 is then shown on line 47 as the foreign tax credit which resulted in no tax due since only other items were trading losses in US.

No conversion was made from Canadian to US currency, which I questioned. Also, no Canada tax return was filed.

At first glance I accepted it, but when I got to doing the extension, several questions began to crop up in my mind. I'm just trying to get a good figure for extension, but with all the returns facing me the last few days, cannot research it. I'm hoping you can give me a quick, acceptable idea. This year the income was 226,244 with tax withheld of 77047. So it is a much larger amount.

With this info, any observations or pointers?

LT

[Burke]

Unless you know how many days he worked in Canada, you won't know whether he qualifes (or qualified last year) for the Foreign Income Exclusion on Form 2555. So that is something you will need to obtain from him. And you do have to convert all CAD into USD using the rates for the months he was there. You can average them. I would recommend you download and read IRS Pub 597 on the US-Canada Income Tax Treaty, which will control how this is handled. It depends on the type of income received, how many days he was in the country, etc as to whether it is exempt from Canadian tax. He can't get a refund of tax from Canada unless he files a return there.

Since the maximum FIE for 2012 is $95,100, you can see he is way over that for this year. For 2011, it was $92,900 and he would have been under the max if he qualified for it. The preparer did not use Foreign Income Exclusion; that is why he used the Foreign Income Tax Credit to wipe out the tax liability. TP would have had to live in Canada for more than 330 days to use that.

[Phil Hogan, CPA, CA]

I have a new client whose income last year was from Canada. He received the Canadian version of the W2.

I have the federal return from last year. But there was no Canadian return filed for last year. They filed it as Foreign Income and Form 1116.

I would appreciate any and all comments about how this was handled.

As usual, thanks in advance.

LT

Definitely an old post, but if you're looking with someone with both Canadian and US experience please don't hesitate to send me an email.

Cheers

Phil