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Hi Allan:
I have a client for whom I want to file a T1 return. Here’s the background information of the client:
1. The client and his family moved from the US on Sept 4, 2018.
2. The client and his wife have had income in the US and they both have W-2s.
3. The client and his wife also have T4s issued by their employers in Canada.
Here are my questions:
1. I’ve included the US employment income on line 104 and deducted it fully on line 256. Is this correct? (Because Canada has tax treaty with the US).
2. Do I have to file a T2209, and T2036? My understanding is T2209 (Federal Foreign Tax Credit) & T2036 (provincial foreign tax credit) need to be filed only where non-business income is from a country with which Canada has no tax treaty. Am I correct?
3. If on the other hand, I’m to report foreign income and taxes from the US (i.e. on T2209 and T2036), then which taxes do I consider on these forms, just the federal and state taxes or even Social Security tax, and medicare tax, too?
4. The tax payer became a resident in Canada only on Sep 4, 2018. The income he derived from the US was earned entirely prior to him becoming a resident in Canada? Also, it doesn't seem fair to report this in the Canadian return because he was only part of year resident in Canada (He will be filing a 1040 or 1040NR to the IRS).
My responses are as follows:
1. Do not claim a tax deduction on line 256. The income is not tax exempt. Any income earned by your clients outside of Canada prior to coming to Canada is not taxable in Canada. In particular, US income earned by your clients prior to coming to Canada should not be reported on line 104.
2. If your clients continued to receive income from the US (e.g. US employment income) after they moved to Canada, then include ONLY the income received after their date of immigration to Canada on line 104. A foreign tax credit should be claimed on form T2209. A provincial foreign tax credit may also be possible.
3. Social security tax, medicare, State Tax and Federal Tax can be claimed as part of the foreign tax credit. See point 2 above.