Tax on Canadian Pension

Today TaxMama hears from Susan in the TaxQuips Forum, who is perplexed. “My husband started receiving a Canadian pension this year. There was $115 non-resident tax paid on the pension.  Canadian tax officials tell me that it can be claimed as a foreign tax credit.  I have no idea how to do this.  Do I need to fill out a Form 1116?  If so, I found this to be one of the most incomprehensible tax forms ever!  What category of income is it?”

 Dear Susan,

You are SOOOOOO right.  The Form 1116 is excessively confusing.  Check the box (b) for General Category Income.

In Part II, use box (n) and/or (s). You have the option of taking the credit or using the foreign taxes paid as an itemized deduction, among the taxes. Either way, your state will not give you any credit for this.

 If this is the Canadian equivalent of Social Security, there is a special provision in the tax code (treaties) to treat the income like US Social Security. Here are the instructions.

 I hope you’re enjoying your husband’s retirement.

 And remember, you can find answers to all kinds of questions about foreign pensions, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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