Income Tax Question for My American Husband Living with Me in Canada with regard to his US pensions and Social Security -

Date:           Thursday May 31, 2007
Time:           09:30 PM -0400

QUESTION:

My now-husband is a retired American citizen who moved from Alaska to live with me at the beginning of 2006.  We were married in May 2006.  Although his income is all pensions from US sources, we know that he is required to file both US and Canadian tax returns for 2006, but we are becoming quite frantic at the incorrect and/or conflicting information we have received from both CRA and the IRS.  We even went into an IRS office in Anchorage, Alaska last summer to ask our questions and were told by the person we spoke to, "I am trained in international tax law and I know the answers to your questions, but I'm not allowed to tell you because I'm not working in that area now"!

A CA  friend of mine recommended an accountant in White Rock who supposedly does US/Canadian tax returns.  We contacted her months ago and she agreed to do his returns when the time came, but since then she has stopped returning my many phone calls and e-mails.  My husband has applied for an extension to file his US tax return, but there is no such option available in Canada, and he is accumulating interest and penalties.  The fact that we don't know what his Canadian income will be for the purposes of his tax return has also kept me from filing my own return, although I am due a refund so I assume this isn't a serious problem.

We are seriously concerned about this problem.  In searching the internet today, I was relieved to come across your website.  I spent several hours perusing other people's questions, but I couldn't find anything referring to retired people in our situation.  I'm hoping that we can make an appointment to meet with you or one of your staff to get this problem resolved.

Thank you for whatever help you are able to give us.

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david ingram replies:

I know Anchorage reasonably well and have been there 8 times after driving the Alaska Highway.  Have friends there with public Television and also in Soldotna, Homer, Wasilla, Palmer and Eagle River in that area.  I expect that you went to the IRS office in Soldotna, not Anchorage but who the heck down here knows where Soldotna is?

But enough of a travelogue.

As a non-resident of the US, your husband has to pay 15% tax to the IRS on any of his company, IRA or 401(K) type pensions.  He does NOT pay tax to the IRS on his US social Security.  He will file a 1040 and exempt the US social Security under Article XVIII (5) of the US / Canada Income Tax Treaty.

It is important to limit the US tax to 15% and it may be necessary to file form 1116 and "resource according to Treaty" the pension income  to limit the tax to 15% because Canada will only allow a tax credit on 15%.  If he has interest from the US, the treaty rate is 10% and if he has dividends, the treaty rate is 15% as well..

Your husband will then covert the amounts to Canadian Dollars and report all of the pensions including the US Social Security on line 115 of his Canadian T1.  He deducts 15% of the Social Security on line 256 of the return.  If he has any interest or dividends, they would go on Schedule 4 of the Candian return and would also be subject to foreign tax credits.

He claims credit for the 15% tax paid to the US by filling in lines 431 and 433 (and completing the calculation) on schedule 1 of the Canadian T1.  If he does not get full credit from this calculation, he can fill in the provincial foreign tax credit and get the balance.

I / We would be happy to assist you.  Our pricing follows below after a preamble abouot how to get through to us.

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