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Canadian Tax question


Linda Mathey

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Hi,

I am hoping someone is familiar with Canadian taxes and can assist me.  I have a client that is 89 years old.  He has been my client since 1982.  In all that time I have never been provided with any forms from the Canadian government.  He is now suffering from dementia and his daughter gathered his tax information.  Among the documents were two forms.  One is an NR4 and is a statement of amounts paid to non-residents of Canada of $3,017.76 and the second is also an NR4 reporting an amount of $523.41 as old-age security pension.  

I have done some research and learned that his US Social Security would have been reduced by the regular pension amount and that it would only be taxable if it were taxable in Canada.  Does anyone have any idea how I determine if these amounts are taxable on his Form 1040 and if so where and how do I report them?

Thank you in advance for any assistance you can provide.

 

Linda

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The clients I have with NR4s are for income from dividends and the OAS so my experience is limited to that.  U.S. citizens are supposed to report on worldwide income, and there are some special rules pertaining to pension income depending on the type of pension, and U.S. citizens that invest in Canadian mutual funds.  Since you didn't say what type of income the $3K+ so it's is hard to give an answer on that.

Whatever you report on the 1040 will need to be converted to U.S. dollars based on the exchange rate at the time. If the client doesn't have the amounts paid in UDS, you can look up the exhange rates here: https://www.fiscal.treasury.gov/fsreports/rpt/treasRptRateExch/treasRptRateExch_home.htm

Canada's OAS is similar to our social security benefits and is reported on line 20a along with our SSA benefits and using the same formula to calculate the taxable portion.  Your client has probably been receiving this for years and not telling you because he didn't realize it is reportable and could have additional taxable income in those prior years, depending on the exchange rate at the time and his level of income. 

If you tell us more about what type of income that larger amount comes from, maybe we will be able to better answer on that.   If, for example, that is from dividends, that would be converted to UDS and reported on our Sch B.  Canada does withhold tax directly on dividend income that would also be shown on the NR4, and that also must be converted to UDS and is claimed on Form 1116 as foreign taxes paid to calculate the FTC.

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If I understand it correctly, Canada has a social security system and in addition they have a pension that people get when they get old. So, if you qualify for one when you retire, most likely you will get both. Again, I am not 100% sure but you report one together with the US SS security benefits and the other on line 21 since ATX might not like you to enter pensions without entering the pension forms.

 

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I used to have a client who received pension money from Canada and it was on a NR4 with tax withheld.  The IRS used to have a form 8891 that was used up up until 2014 and then it was discontinued.

What would concern me here is the $3K. If it came from dividends, or interest, it might need form 8938 as wells an FBAR requirement.

 

 

 

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As Judy said, it really depends on the income.  I have a client who lives in the US but is a Canadian citizen. Sorting his paperwork can be a real challenge.  Some of his dividends come through an Edward Jones brokerage account in Canada, and get reported on an NR4 for Canada, AND on a 1099DIV for US.  And some of the NR4s are in USD and some CAD.  I don't think he understands how confusing this can be and why I charge him as much as I do.  But he keeps sending his stuff to me because I am the first preparer that even asked if he had foreign accounts and started him doing his FBAR. 

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The $3,000+ is described as #46 taxable Canada pension benefits.  Since it appears that there is no tax on income below $11,635 in Canada, I would assume no Canadian reporting is required and is also the reason there was no non-resident withholding.tax shown.  I think I should report the pension on his 1040 on line 21.  The old age benefits do not seem to fit anywhere else so I would assume line 21 for them as well.

Thanks in advance for your replies.

Linda

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55 minutes ago, Linda Mathey said:

The $3,000+ is described as #46 taxable Canada pension benefits.  Since it appears that there is no tax on income below $11,635 in Canada, I would assume no Canadian reporting is required and is also the reason there was no non-resident withholding.tax shown.  I think I should report the pension on his 1040 on line 21.  The old age benefits do not seem to fit anywhere else so I would assume line 21 for them as well.

Thanks in advance for your replies.

Linda

@Linda Mathey Linda, the OAS and the CPP are the equivalent of social security and as I said before, it is reported on line 20a that will use the same formula for calculating the taxable portion of benefits. If these are in canadian currency, please convert it to U.S. dollars and enter it on line 20.  Please see pub 915 where it instructs that the OAS benefits received should be entered on worksheet 1 which is the worksheet to use for line 20 of the 1040. 
 

Quote

Canadian or German social security benefits paid to U.S. residents. Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later.

And this also on the OAS:

Quote
How do I enter retirement income from the Canada Pension Plan, the Old Age Security plan, or from Canadian Registered Retirement Savings Plans or Registered Retirement Income Funds?

 

Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) plan benefits paid to a US resident are treated as US social security benefits:

The taxation of payments received from Canadian retirement programs that are similar to the U.S. Social Security system receive special tax treatment due to an income tax treaty between the United States and Canadian governments. The way this income is taxed depends on the recipient’s residence.

The special tax treatment applies to payments receive from the following Canadian retirement programs: Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS)

If the recipient is a resident of the United States, benefits:

  • are taxable only in the United States,
  • are treated as U.S. social security benefits for U.S. tax purposes, and
  • are reported on Form 1040, U.S. Individual Income Tax Return (or Form 1040A) on the line on which U.S. social security benefits would be reported.

If the recipient is a U.S. citizen or lawful permanent resident (green card holder) who is a resident of Canada, the benefits are taxable only in Canada.

 

 

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I just found this on several sites.  Now the issue is how to input this in ATX???

 

The taxation of payments received from Canadian retirement programs that are similar to the U.S. Social Security system receive special tax treatment due to an income tax treaty between the United States and Canadian governments. The way this income is taxed depends on the recipient’s residence.

The special tax treatment applies to payments receive from the following Canadian retirement programs: Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS)

If the recipient is a resident of the United States, the benefits:

  • are taxable only in the United States,
  • are treated as U.S. social security benefits for U.S. tax purposes, and
  • are reported on Form 1040, U.S. Individual Income Tax Return (or Form 1040A) on the line on which U.S. social security benefits would be reported.

If the recipient is a U.S. citizen or lawful permanent resident (green card holder) who is a resident of Canada, the benefits are taxable only in Canada.

 

Again, thanks for your input!

Linda

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