Foreign Tax Credits and RRSPs Question

path · Post by **path** » Tue May 01, 2012 1:20 am

I have been digging around on the forum on Foreign Tax Credits (FTC) rules - this is my understanding but I could be way off :

We get a dollar-for-dollar US FTC for the amount we pay in Canadian taxes when we withdraw from our RRSP.
But we can NOT use 100% of this credit to write off our US owning taxes on this RRSP income. Instead we get to apply a percentage of this credit - based on our what our AVERAGE US TAX RATE is.
So the bottom line is - we will have left over FTC at the end of the tax year.
We can carry forward the FTC for a max of 10yrs.
We can use this FTC to apply against foreign 'general limit income' such as CPP.

CPP will be looked at by the US as regular income and taxed as such.
But if we have outstanding FTC - we can negate this tax - by applying the credit.

Am I correct here?

nelsona · Post by **nelsona** » Tue May 01, 2012 7:24 am

CPP won't be taxed in canada, so, yes, you would be able to use your carried foreign tax against it.

path · Post by **path** » Fri May 04, 2012 3:15 am

Nelsona :

Am I correct when I say : We get a "dollar-for-dollar" US FTC for the amount we pay in Canadian taxes when we withdraw from our RRSP.
IE :
- If I paid $1200 US to the Canadian Gov in taxes for my RRSP withdrawal
- I would then get a $1200 US FTC (dollar-for-dollar credit)
- I will then get to apply a % of that FTC against my US owing - lets say it is $900.
- Then I will have $300 US FTC left over ($1200-$900) that I can carry that forward (for the next 10yrs).

And as you pointed out - I could use this left over FTC to apply against my the US tax on my CPP.

Do have this right?

nelsona · Post by **nelsona** » Fri May 04, 2012 10:34 am

No, read your other thread. very little of your RRSP tax will be creditable unless your marginal rate in US is well over 25%.

path · Post by **path** » Mon May 07, 2012 1:09 am

Nelsona

I am definitely confused about the 'US tax credits' from the taxes I pay on my RRSP Canadian withdrawals.
I was hearing about carrying forward excess FTC - and using them for CPP.
But I am trying to figure out where these excess FTC are coming from.

My assumption was that I got a 'dollar-for-dollar' FTC on my Canadian RRSP tax payment - but that I could only use a % of these to offset my RRSP income - and then I would have excess FTC.
But I am thinking this assumption is wrong.

Any clarification on this would be helpful.

thanks

nelsona · Post by **nelsona** » Mon May 07, 2012 6:13 am

There is rarely 'dollar for dollar; in the FTC world. You get UPTO wjay you paid in canada, but usually much less.

You will see as you allow the software to figure 1116.