Hi everyone!
Needs some help here. I have a client with a pretty straight forward 2023 T1 return, but they have a K-1 from the US. In box 20, Code ZZ Current year transactions, there is a high amount as cash received for partnership interest, but I’m not sure where or if this needs to be reported on T1? See attached. Any help is much appreciated!!
I don’t know much about US taxes or tax forms, so I don’t what a K.1 is. But, I would ask the client if they, indeed, have a partnership interest in some kind of business. If so, it doesn’t matter where that business exists or operates - your client must report their share of the business income and expenses on their T1 (likely using a Foreign Income worksheet in TaxCycle). As such, you will need much more information than this K.1 form.
If this K.1 indicates that they disposed of their partnership interest, it needs to be reported on S3 - it is a disposal of capital property. Again, you enter the details on the Foreign Income worksheet in TaxCycle, and it will be automatically carried to S3 in CAD equivalent.
A k-1 is the US equivalent of a T5013. I usually report any net business income on a T2125 and interest/dividend income/capital gains income on the foreign income slip pages. I haven’t run across box 20 code zz before. It looks like a sale or a deemed sale of some sort so you need to figure out the cost and report the cost & proceeds on sch 3. You may need all the K-1’s back to original purchase to properly figure this out as there may be return of capital reported on some of them.
Hi everyone!
Really appreciate the support of this community.
I know that this amount needs to go on S3, but I’m uncertain if it should go to disposition of interest to non-resident - inclusion rate of 100% or elsewhere. This makes a huge difference to balance owing and I don’t want to get it wrong.
My client has provided additional documents which gave me the ACB and outlays and expenses to include, but I don’t have a lot of experience with US vested shares and can’t find relevant information online. If anyone has resource links, it would be helpful.
Thanks again.
@niina
" I have a client with a pretty straight forward 2023 T1 return, but they have a K-1 from the US. In box 20, Code ZZ Current year transactions, there is a high amount as cash received for partnership interest, but I’m not sure where or if this needs to be reported on T1?"
UNDERLYING CONCEPTS
1 - All USA income must be reported to IRS using their SSN per their IRS compliance requirements.
2 - Canadian taxpayers report both their Worldwide income to CRA. This includes their US income.
3 - File with both IRS and CRA.
4 - Prepare a T1 Adjust with the copies of all of the following: documents:
- IRS slips
- IRS return
- IRS assessment
5 - Send your CRA T1Adj to the current international tax services office aka ITSO which is mandated to assessing such returns for your TC. This varies by tax season.
CALL CRA
Call CRA Individual Enquireis and as for help from two specialized agents. You may need to ask for a callback.
Agent 1 - Partnership Income
Agent 2 - Canada US tax treaty with respect to IRS - K1
REFERENCES
ITSO
Canada / US tax treaty
How is partnership income reported in Canada?
IRS K-1
This seems to be investment/ partnership income. It is often used for tax shelters or investment groups.
Please let us know what you discovered.
