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QUESTION:
As a U.S. citizen residing in Canada, (pernament resident) what percentage
of my Armed Forces retirement is taxable by Canada. Presently my tax preparer is
converting it to Canadian funds and adding it, directly to my Canadian
income taxing it at about 45 percent. Keep in mind both U.S. Federal courts and the IRS
consider the Armed Forces Retirement a retirement not a pension, and that it
is a payment for services rendered although in a reduce state. Under the
U.S. Canadian Income Tax Treaty, Article XIX I believe any Wages Salaries
paid by the U.S. is only taxable by the U.S. I pay more than my share in
Canadian taxes on Canadian source income, I feel it unfair to give up 45 percent of my retirement also.
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david ingram replies:
If you are receiving a 1099-R to report your armed forces pension, it is 100% taxable in the USA and 100% taxable in Canada.
If you are receiving a military disability pension you have to use Publication 525's worksheet to calculate the taxable part for the USA and the same amount would be taxable in Canada.
If you are receiving a form RRB-1099-R you have to use Publication 575's worksheet to calculate the taxable part.for the USA and that amount would be taxable in Canada in turn.
However, as a US Citizen living in Canada, only 15% tax is payable to the US.under the tax treaty between Canada and the US.
Therefore, you should be paying 15% tax to the US and claiming credit for it on Schedule 1 of your Canadian tax return and whatever provincial form is used for the procince you are in (BC is BC428 as an example).
Unless your US tax preparer is experienced in out of the country US persons, he or she will have no idea of how to calculate the 15% for the US tax return. I say this because in 37 years, I have NEVER (not once) seen it done properly by another office where the income is sufficiently high that eh tax calculated on the US rerturn is over 15% .
Article XIX of the US Canada Tax Treaty does not apply to your pesnion. The technical Amendments to Article XIX of the treaty are very clear in that the article applies to active services only and not to retirement pensions or retirement schemes for any government service.
Article XVII of the Treaty Applies
I hope that you are preparing your US return correctly and reporting all of your Canadian income on it with the proper Form 2555 (up to) $80,000 exemption or the form 1116 foreign tax credit and the form 1116 reclassification foreign tax credit. I am assuming that you have significant other income in canda of at least $60,000 a year because you would have to have that amount of income to make your US armed forces pension taxable in Canada at 45%.
Hope this helps
You might want to have me look over your last years US and Canadian Tax returns as a check.
My contact numbers and addresses are below.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321
[email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
This from "ask an income tax and immigration and bankruptcy expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
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another similar question will be as we lump them.
You may find more answers at www.centa.com
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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