It was so much easier when US companies only issued W2 to Canadian, but know especially the BIG 3 are giving W2 and T4 to there cross border employees. Where do you even start now on the T1. No need to enter the W2 income on T1 as the T4 has Income and tax on it now. But how do you enter the foreign income tax paid onto the CDN return now with out adding the foreign income on the CDN return because its already included on the T4?
I ran into a very similar issue yesterday where my client frequently did some some work in the US for his Canadian employer. He received a letter from the employer stating the portion of income applicable to his time in the US, and also the Tier 1 and Tier 2 tax that was remitted to the US. The US income was already included in his T4, thus I had to make sure it wasn’t claimed again on Line 10400.
I did several experiments using blank tax returns to understand how TaxCycle coded the US portion of Income and the US Tax paid. Here is what I discovered.
If you enter the US portion of income and the US tax paid on the FOREIGN TAB, the data gets transferred to the US FTC Tab and places it on the “Income from Slips” line. It seems that TaxCycle ASSUMES this foreign income is from a separate tax slip, placing it on the Slip line, which then auto transfers the income to Line 10400.
In contrast, the FTC tab also has a line for “Other Employment Income on which tax was paid”. If you enter the income and tax paid directly onto this line of the FTC (and don’t use the Foreign Tab), then TaxCycle assumes that this income was already included in a tax slip and the income portion is NOT entered in income.
So, my solution was to not use the Foreign Tab and enter the US portion of income and US tax paid directly onto the FTC tab on the Other Employment Income line. Problem solved.
The T2209 and the T2036 generate properly. You just have to make sure you name the US country on the TOP bar (US in my case), and report the amount in Canadian currency as the FTC tab doesn’t have an exchange rate conversion tool like the Foreign Tab does.
Recommendations to TaxCycle for a future upgrade:
- Is it possible to update the Foreign Tab to include the option for both Employment SLIP income and Employment Non-Slip income so that it matches the income reporting on the FTC Tab?
Thanks is it possible to send a screenshot so I can better understand. Thanks
Tim Boufford
timboufford@cogeco.ca
In these examples, let’s assume the employee earned $100,000 gross income in T4 Box 14.
And let’s assume the US income, already included in T4 Box 14 = $5,000, and foreign tax = $500.
For simplicity in my example, since the T4 is already in CDN, the US Income and US tax are also recorded in CDN currency.
The first example (3 snapshots) shows the US income and US Tax paid entered on the Foreign Tab.
- Snapshot 1: the data entered on the Foreign Tab
- Snapshot 2: the data transferred from the Foreign Tab to the FTC Tab
- Snapshot 3: the US Income showing up on Line 10400 because the data is entered on the Foreign Tab.
- Snapshot 4: T2209 & T2036 Foreign Tax Credit Calculations for Lines 40500 and also the provincial equivalent (calculates the same in both Examples 1 & Example 2).
It is evident from this example that we have a double entry of income when using the FOREIGN TAB.
Example 2: Do NOT use the Foreign Tab. Enter the US income and tax directly on the “Other Employment Income” line on the FTC Tab. Here, Line 10400 is blank, and NO additional income is reported because it is assumed it is already included on Line 10100 from the T4 slip.
- Snapshot 1: the data is entered DIRECTLY on the FTC Tab
- Snapshot 2: the US Income showing up on Line 10400 because data is entered only on the FTC Tab, not on the Foreign Tab.
What is really weird is that if I use the Foreign Tab, and then over-ride the FTC Tab and manually move the amount from the SLIP box to the Other Employment Income Line, it makes no difference. Line 10400 still get’s populated simply because the Foreign Tab was used.
Trying the other way, not using the Foreign Tab but just the FTC tab, moving the income from the “other employment income” line to the Slip line, it still does NOT show up on Line 10400.
So it seems the way TaxCycle coded this, as long at the Foreign Tab is used, you will always have the employment income added to income. And as long as you just use the FTC tab by itself (without the foreign tab being used), employment income will never be added to income regardless of which line it is placed on. I’m really not sure why TaxCycle designed it this way. Maybe an oversight? Perhaps they can shed some light on the subject?
I hope this helps. The way I learn is by playing on blank test returns.
Thank you so much. I do understand it much better now. When I added his T4 that FCA issued in CDN dollars. Then I went to option 2 and put in his W2 income and tax paid convert to CDN dollars it now shows him with a $17,000 refund in Canada based on his FTC
Tim Boufford.
timboufford@cogeco.ca
Be sure to file US and State returns, and claim foreign tax credit based on tax per US returns, as well as social security and medicare paid
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Good points, Bert. There is a very high probability that CRA will request copies of the US Tax Return and the associated US tax documents. There have been other discussions in this forum about US tax, and basing your claim entirely on the W2 is often not sufficient. The Foreign Tax Credit claim should be based on the US Return, not just the W2.
Yes I understand that. Thanks.
Tim Boufford
timboufford@cogeco.ca
Can you verify if possible.
T4 from FCA CDN dollar $132,348.15 and $23385.19 in taxes.
W2 income in USD to CDN 131,595.44 and 29393.76 in total taxes. When I follow your step two I come with a refund of $17528.
Tim Boufford
timboufford@cogeco.ca
I think you are on the right track, Tim.
You didn’t mention which province the client’s return is being filed from, but when I change the province of residence to Ontario to calculate Ontario tax, I match your results pretty close. I get $17,529.15 as a refund using the figures you gave. I’m assuming your US values include social security and medicare paid. And my calculations do not include any other deductions that might be listed on your T4 slip.
If you look at the bottom table on the FTCSum Tab, which summarizes the Foreign Tax Credit on the T2209 (federal) (Line 40500) and the T2036 (provincial) (Line 82 on the ON428), you can see that the total of both credits equals the US tax your client paid and how they reduce the federal and provincial taxes owing on Lines 42000 and 42800.
Thanks so much and yes Ontario. I really appreciate your support in figuring this out. I am assuming this will still trigger audit in the fall. But I am glad this is working out. I was telling clients if they had both W2 and T4 I wasn’t going to do them. But I did keep one. I am sure he will be happy. Thanks again
Tim Boufford
timboufford@cogeco.ca
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Next million dollar question, Since he was able to collect the FTC on his cdn return can he claim the Canadian income tax paid on his US return