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Sent: Tuesday, November 11, 2003 1:16 PM
Subject: reporting US Municipal bond tax-exempt interest from an estate to the CCRA in CANADA
QUESTION:
Husband: born Canadian citizen, wife landed immigrant, US citizen who files her 1040 and reports her RRSP.
Both my husband and I(also the executor)received an inheritance from my mother from the US. For the fiscal year after her death the estate continued to generate some income until the the legal/tax stuff was concluded. That income was reported to the IRS on 1041 and 1041 Final K-1. Some tax exempt interest is listed on the 1041 final K-1, (lists each beneficiaries share of income). The US accountant mailed a copy for each beneficiary to the IRS. The source was non-taxable interst from Municipal Securities.
So far so good.
On both Canadian income tax returns I listed the tax-exempt interest under other income from foreign slips (line 130) and took it off on line 256, additional deductions. Why did I do it that way? ON ADVISE FROM THE CCRA HELP LINE. I efiled both returns.
Then, I received notice to send supporting documents for the deduction on line 256. I faxed my copy of the 1041, Final K-1. The CCRA accepted my deduction. My husband received the SAME NOTICE for supporting documents, we sent the same letter and the his copy of the 1041, Final K-1 and was rejected. The CCRA wants his US 1040, 1099's etc.(which don't exist, and was not sent to the beneficiary anyway)to document the type of income.
Finally my question: is there supporting information in the CCRA guidelines and/or US/Canadian tax treaty to justify my deducting the US tax-exempt interest on the Canadian tax form?
I don't really want to remind them that they already accepted my deduction for the same thing in case they change their minds.
Thanks,
KXXXXXXXXX
Sorry for the longwinded letter.
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david ingram replies:
US Municipal tax exempt ineterest is NOT tax free in Canada. The help line goofed in suggesting that you could take it off on line 256.
In your situation, you should NEVER efile your returns. Your chance of questions or audit goes up tenforld if not twenty times if there is any foreign income or situation involved.
In fact, I do not think that anyone with:
a.. child care expenses
b.. charitable donations
c.. medical receipts
d.. moving expenses
e.. rental income
f.. employment expenses
g.. RRSP deductions
h.. Union Deductions
i.. business income
j.. farming income
k.. A single or separated dependent
l.. caregiver expenses
m.. tuition fees
n.. student interest deduction
or anything but ONE T4 slip should efile their return.
Efile is only of benefit to the government. It has no benefit to you and if you had limited resources to look at or audit returns, which ones would you look at?
Would you look at ones that have already sent in their medical, charitable, RRSP and other information on paper or would you look at the returns which are only represented by little dits and dashes.
Also, if you send the paper in, THEY (the CCRA) have to store it and protect it. If you do not send it in, "you" have to keep it safe and secure for seven years "just in case" thjey may want to see it.
DO NOT EFILE!
Nice to hear from you! How is the weather up there?
David Ingram's US/Canada Services
US / Canada / Mexico tax 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
(604) 980-0321
New email to [email protected]
www.centa.com www.david-ingram.com
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David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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