401K contributions not deductible in Caanda in past - maybe yes in 2008 -

 
Sir,
I am a Canadian citizen employed by a US company. I have been contributing along with my employer to the company 401K plan for a number of years now (19). For those years Canada has been taxing my part of the total contribution as taxable earned income and adding these to the amount shown under "Wages, tips, other compensation" on my US W2 Wage & Tax Statement. There has been no US tax paid on these contributions.
My question is: Will Canada tax this money again under the terms of the US/Canada tax treaty when I retire and commence withdrawing amounts from the 401K plan. I  understand that the US will apply a withholding tax as per their own tax rules, however I do not know if Canada can double dip under the rules of the treaty.
Thank you in anticipation of a reply.   
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david ingram replies:

You will be paying 15% tax to the US on the amounts coming out of your US 401(K).

This 15% is then deductible as a foreign tax credit on your Canadian tax return.

The part that you are being returned where you did not get a deduction has to be isolated out of the blended payments and can be claimed tax free in Canada but you will not get credit for the 15% tax paid to the US so it 'is' Double Taxation.

I think but am not yet sure that an amendment to the Tax Treaty on Sept 21 will allow you to deduct the US 401 K on your Canadian return but until  the CRA releases its Technical notes on the new amendments to the treat, I will not be sure.

Anyone else with an opinion?
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This is not intended to be definitive but in general I am quoting $900 to $2,900 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,100 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$2,900 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $175.00 up.
 
With a Rental for $375
 
A Business for $375 - Rental and business likely $500
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide will be $150 to $500.00 depending upon numbers of bank accounts, RRSP's, existence of rental houses, etc.

Just a guideline not etched in stone.
 
 
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