US / Canadian dual citizen moving from Texas back to

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----- Original Message ----- 
From: David Ingram at home - bus at [email protected] 
To: [email protected] 
Sent: Friday, September 12, 2003 11:02 PM
Subject: US / Canadian dual citizen moving from Texas back to Canada
-----Original Message-----
From: [email protected]
[mailto:[email protected]]
Sent: Friday, September 12, 2003 11:39 AM
Dear Sir/Madame:
We have a client that is a dual citizen of  U.S./Canada.  The gentleman in question was born in Canada, moved to the U.S. to live and work.  During which time, he  bought an annuity in Texas.  He has now decided to move back to Canada, but doesn't want to take withdrawals but he wants to know
if he will lose tax deferral and a cost basis change.  As well, will there be any other ramifications to be aware?
Thanking you in advance for your assistance.
Can somebody give some guidance in regards to this urgent enquiry?
Regards
Paula T. Sheldrick
Internal Wholesaler
The Hartford Investments Canada
Tel:     (416) 204-9916 x 4112
Free:   1 (877) 302-2210 x 4112
Fax:     (416) 204-9952
www.hartfordinvestmentscanada.com
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David Ingram replies:
Your client will be subject to 15% withholding per Article XVIII (2) (b) of the US / CANADA Income tax Treaty which reads as follows:
2. However:
  (a) Pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment; and
  (b) Annuities may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of an annuity payment, the tax so charged shall not exceed 15 per cent of the portion of such payment that is liable to tax in the first-mentioned State.
  This means that your client will have 15% withholding paid to the IRS and will then convert the annuity amount to Canadian dollars and report the gross amount on his Canadian return.  Depending upon his other income, he will owe Canada between 0 and about 44% - In general he will pay about 22% for income under $30,000 and 35% for income between $30,000 and $60,000 and 40 to 44 % on income over $60,000.  Every province has a different rate, just as each state has a different rate.
  He will then claim the 15% withholding paid to the IRS as a (usually) dollar for dollar tax credit against his Canadian Taxes.
  He is only taxable in Canada on the amount that is taxable in the US.
  Because he is a US citizen, his actual 1040 (which he must continue to file) might show his US tax on the annuity at more than 15%.  If this occurs, the tax is adjusted back to 15% by using the "reclassified by treaty" section of US Form 1116.  The 1116 reclassifys the annuity as foreign income and allows the preparer to bring the effective US tax on the annuity down to 15%.
  Don't ask me to explain "how" to do that.  It took me years to figure it out and I charge for that service. 
  david ingram
  David Ingram of the CEN-TA REALTY  Group
  US / Canada / Mexico tax and working Visa Specialists
  US / Canada Real Estate Specialists
  108-100 Park Royal South
  West Vancouver, BC, CANADA, V7T 1A2
  (604) 980-0321 - Fax 913-9123 [email protected]
  www.centa.com www.david-ingram.com
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