My_question_is: Applicable to both US and Canada
Subject: Foreign Tax Credit on 401K Distribution
Expert: taxman at centa.com
Date: Thursday November 25, 2004
Time: 11:05 AM -0800
QUESTION:
Hello,
I am a US citizen residing in B.C. under a TN Visa. In 2003, I took out a
lump sum payment from my 401k in the US. I was assessed 20% taxes for the
withdrawl in the US (10% in taxes, 10% as a penalty), and I claimed the
entire 20% as a foreign tax credit on my Canadian return. The CRA denied my
claim for a credit on the 10% penalty amount, adjusted my claim, and now say
that I owe them a substantial chunk of money. To me this is double taxation
at its absolute worst. Is there anything I can do?
Thanks in advance for your advice.
============================
david ingram replies:
The answer is likely still wrong. As a US citizen living in Canada, you are
required to file a US return to report your Canadian earnings on your US
return. This does NOT mean double taxation because you get to exempt up to
$80,000 US of Canadian earnings on your return by filing form 2555 or claim
a foreign tax credit for the tax paid to Canada on form 1116.
Ask an International real estate mutual funds immigration non-resident
income tax expert experts - David Ingram 's CENTA Services in North
Vancouver BC Canada on Fred Snyder's It's Your Money CKBD AM600 Radio Show
http://www.irs.gov/pub/irs-pdf/f1116.pdf
http://www.irs.gov/pub/irs-fill/f2350.pdf
When you filed your US return, the tax would have been different than the
10%. The 10% is just a withholding. After filing your return, (based upon
the $1,000 Cdn you say you owe), my bet is that you would have received most
of the 10% tax withheld back. In addition, if you took the money out of
your IRA to buy a house or condo in BC, the 10% penalty does not apply.
However, I bet that you did NOT file a US return. File the US return. You
will likely get back most of the 10% tax withheld and leave the 10% penalty.
Take the US refund and pay Canada.
If you had done this is advance, we have filed form 2350 for you as in the
following which I have cut and pasted from another question
---
And then, there is the big league form that no one ever uses, FORM 2350.
Form 2350 is used for people who have moved out of the US and expect to be
gone long enough to qualify for the (up to $80,000 of ) earned income
exemption.
This is a specialized form only used once and only when a US citizen or
green card holder has moved to Canada or any other country. It is most
important in countries like Saudi Arabia or Dubai where the American can
earn up to $80,000 totally tax free if they are out of the US for 330 out of
365 days or establish a residence in another country for a full calendar
year.
I never recommend taking the 330 out of 365 days because it means just what
it says - 330 out of 365 and although that might work if the client is in
Germany or Saudi Arabia, it is just too tough for a Canadian resident who is
likely jumping back across the border for gas and turkeys. If you have
already been in the states 34 days and someone dies or wants to get married,
you do not dare go back for a wedding or funeral.
If you are going the 2350 routine, file under the bone fide residence
classification on the form 2555.
Form 2350 - http://www.irs.gov/pub/irs-fill/f2350.pdf
Form 2555 - http://www.irs.gov/pub/irs-fill/f2555.pdf
And, of course, we are happy to look after your US and Canadian Income tax
returns by email, snail mail, fax or courier
david ingram And don't forget,
===========================================================
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Starting this Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of
Cartier Partners and I, David Ingram will be hosting an INFOMERCIAL but
LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com
===========================
This from "ask an income tax and immigration expert" from www.centa.com or
www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis
with expatriate tax returns with:
multi jurisdictional cross and trans border expatriate problems for the
United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait,
Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France,
Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia,
Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran,
India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba,
Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK,
GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas,
San Antonio and Houston Texas, Boston Chicago
Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration
Tips, Income Tax and ImmigrationWizard Income Tax and Immigration Guru
Income Tax and Immigration Consultant Income Tax and Immigration Specialist
Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist
expert preparer consultant expatriate anti money laundering money seasoning
FINTRAC E677 E667 4789 4790 TDF-90 Reporting $10,000 cross border
transactions
Alaska, Alabama, Arkansas, Arizona,
California, Colorado, Connecticut,
Delaware, District of Columbia, Florida,
Garland, Georgia, Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland,
Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nebraska,
Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina,
North Dakota, Ohio, Oklahoma, Oregon.
Pennsylvania, Rhode Island, Rockwall,
South Carolina, South Dakota, Tennessee,
Texas, Utah, Vermont, Virginia,
West Virginia, Wisconsin, Wyoming,
British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, Quebec City,
New Brunswick, Prince Edward Island,
Nova Scotia, Newfoundland, Yukon and
Northwest and Nunavit Territories,
Mount Vernon, Eumenclaw, Coos Bay
and Dallas Houston Rockwall Garland
Texas Taxman and Tax Guru and wizzard
wizard - consultant - expert - advisor -advisors consultants - gurus - Paris
Prague Moscow Berlin
Lima Rio de Janeiro, Santaigo
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980-0325
New email to davidingram at shaw.ca
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or
consultation and is to be regarded only as general comment. Nothing in
this message is or should be construed as advice in any particular
circumstances. No contract exists between the reader and the author and any
and all non-contractual duties are expressly denied. All readers should
obtain formal advice from a competent and appropriately qualified legal
practitioner or tax specialist in connection with personal or business
affairs such as at www.centa.com. If you forward this message, this
disclaimer must be included."
Be ALERT, the world needs more "lerts"
---
Outgoing mail is certified Virus Free.
Checked by AVG anti-virus system (http://www.grisoft.com).
Version: 6.0.801 / Virus Database: 544 - Release Date: 11/24/04
---
Outgoing mail is certified Virus Free.
Checked by AVG anti-virus system (http://www.grisoft.com).
Version: 6.0.801 / Virus Database: 544 - Release Date: 11/24/04
What's Related