We have a client that entered Canada in March 2023 and the proration factor is 302/365. On the Info screen and the Immigrant/Emigrant screen, we’ve checked the box that asks whether non-refundable tax credits should be pro-rated.
Their world income prior to immigrating to Canada was $400 and income earned while living in Canada was over $60,000. The client received a reassessment letter stating:
“As you were a non-resident of Canada during the 2023 tax year, the ratio of your Canadian Source Income to your Foreign Source income was not greater than 90%. We pro-rated your claim for the tuition amount transferred from your spouse of commo-law partner based on 302 days you were a resident in Canada that you reported on your return.”
The tuition transfer amount was changed from $5,000 to $4,137. Should TaxCycle have pro-rated the amount when creating the return?
No. The CRA did it right. You likely didn’t fill in the immigrant page properly where it calculates this. You have to report 90% of your world wide income on the Canadian return to get full personal tax credits on an immigration/emigration return. I am not certain about the tuition but I would think it should not be prorated if it was fully paid and attended during the resident period. They may however have carried forward the extra tuition if the additional personal tax credits were that amount so check carryforwards into 2024 before doing anything.
Maybe I’m misunderstanding what you wrote, but on that Immigrant/Emigrant form, it only asks about Canadian sourced income while NOT a resident. There is no spot to enter income earned while a resident.
Hmm. The form I suspect is wrong. It doesn’t calculate it properly. I have always understood “As you were a non-resident of Canada during the 2023 tax year, the ratio of your Canadian Source Income to your Foreign Source income was not greater than 90%.” to be the way it should be calculated. I have had to override Taxcycle a couple times in the last 15 years or so to get it to calculate properly - the CRA always allows it when the foreign sourced income is less than 10% of the total world wide income. It works if you tick the box that says they have no income in the resident period but not if you put $400 in foreign sourced employment/investment income vs $60,000 of Canadian sourced income which makes no sense. It’s been a while since I had a case like this myself and forgot I had to override it. It’s very rare that I run across clients like this despite my specialization being people coming and going from Canada.