Foreign Tax Credit on 401K Distribution forms 2350

My_question_is: Applicable to both US and Canada
Subject:        Foreign Tax Credit on 401K Distribution
Expert:         taxman at
Date:           Thursday November 25, 2004
Time:           11:05 AM -0800
I am a US citizen residing in B.C. under a TN Visa.  In 2003, I took out a
lump sum payment from my 401k in the US.  I was assessed 20% taxes for the
withdrawl in the US (10% in taxes, 10% as a penalty), and I claimed the
entire 20% as a foreign tax credit on my Canadian return.  The CRA denied my
claim for a credit on the 10% penalty amount, adjusted my claim, and now say
that I owe them a substantial chunk of money.  To me this is double taxation
at its absolute worst.  Is there anything I can do?
Thanks in advance for your advice.
david ingram replies:
The answer is likely still wrong.  As a US citizen living in Canada, you are
required to file a US return to report your Canadian earnings on your US
return.  This does NOT mean double taxation because you get to exempt up to
$80,000 US of Canadian earnings on your return by filing form 2555 or claim
a foreign tax credit for the tax paid to Canada on form 1116.
Ask an International real estate mutual funds immigration non-resident
income tax expert experts - David Ingram 's CENTA Services in North
Vancouver BC Canada on Fred Snyder's It's Your Money CKBD AM600 Radio Show
When you filed your US return, the tax would have been different than the
10%.  The 10% is just a withholding.  After filing your return, (based upon
the $1,000 Cdn you say you owe), my bet is that you would have received most
of the 10% tax withheld back.  In addition, if you took the money out of
your IRA to buy a house or condo in BC, the 10% penalty does not apply.
However, I bet that you did NOT file a US return.  File the US return.  You
will likely get back most of the 10% tax withheld and leave the 10% penalty.
Take the US refund and pay Canada.
If you had done this is advance, we have filed form 2350 for you as in the
following which I have cut and pasted from another question
And then, there is the big league form that no one ever uses, FORM 2350.
Form 2350 is used for people who have moved out of the US and expect to be
gone long enough to qualify for the (up to $80,000 of ) earned income
This is a specialized form only used once and only when a US citizen or
green card holder has moved to Canada or any other country. It is most
important in countries like Saudi Arabia or Dubai where the American can
earn up to $80,000 totally tax free if they are out of the US for 330 out of
365 days or establish a residence in another country for a full calendar
I never recommend taking the 330 out of 365 days because it means just what
it says - 330 out of 365 and although that might work if the client is in
Germany or Saudi Arabia, it is just too tough for a Canadian resident who is
likely jumping back across the border for gas and turkeys.  If you have
already been in the states 34 days and someone dies or wants to get married,
you do not dare go back for a wedding or funeral.
If you are going the 2350 routine, file under the bone fide residence
classification on the form 2555.
Form 2350 -
Form 2555 -
And, of course, we are happy to look after your US and Canadian Income tax
returns by email, snail mail, fax or courier
david ingram  And don't forget,
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