Using Foreign tax credit carryforwards

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Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Using Foreign tax credit carryforwards

Post by Bubba Gums »

USC building carry forwards. How can these be used?

Can one allocate US income to a foreign source when traveling away from home for business and use the carry forwards? What would be the procedure for this?

What about a $4545 withdrawal by a Can nonresident from an RRSP. 10% would be withheld in Canada, generating $500 of current year credits, However for individuals in a higher tax bracket, the $4545 could be offset by past year carry forward credits.

What about establishing a foreign corporation in a 0 tax jurisdiction?

Any other ways besides working in Saudi Arabia?
MGeorge
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Location: Canada

Post by MGeorge »

The only time foreign tax credit carry forwards are useful is if you have non-US source income, taxable by the US, but not taxable by your country of residence. For example, if you have income in an account in Canada that is not taxable by Canada but is taxable by the US, then you can use these "excess foreign tax credits" to offset the US tax oweing. Another good use for carried forward foreign tax credit is if the non-US country taxes your income in a different year.

I don't understand your question about the RRSP withdrawal. If you are not a resident of Canada, I'm assuming you are a resident of the US. If you are, and you with withdrawal from a Canadian RRSP, this income will be taxable in the US, possibly at a rate of 0-39.6% depending on your situation. The tax withheld by Canada will offset this. I thought 25% is the prescribed RRSP withholding tax.
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Post by Bubba Gums »

I guess I am confused as to the withholding on an RRSP. Some sites say it depends on how much you want to pull out. Others say their is non resident withholding of 25%, still others say 15% by treaty. Irrespective of the actual rate, it seems possible to withdraw from an RRSP assets which would then be non-US source income at a lower rate potentially than US marginal tax rates with a new credit awarded based upon the new taxes assessed and the possibility to use old credits. This will net consume credits, "renew" credits within the 10 year window, FIFO. Of course this is all predicated on the interpretation that RRSP assets are general income and that withdrawing assets from an RRSP would be a foreign source of income.
MGeorge
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Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

I only know the RRSP withholding taxes for residents of Canada - and they do as you say depend on the amount one wishes to withdrawal. For non-residents of Canada - maybe another reader can answer this.

Either way - an RRSP withdrawal if taxation was properly deferred using form 8891 will very likely end up as a general category foreign tax credit on the US tax return for the amount of tax withheld by Canada. Only the growth in the RRSP will be US taxable, using up a little bit of the amount Canada withheld for non-residents. The leftover will be a foreign tax credit that can be carried forward. Certainly RRSP assets are foreign sourced, and I'm sure they are general limit category.
nelsona
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Post by nelsona »

While RRSP withdrawals by residents of US are indeed taxed at 25% by CRA, typically only a small portion of the RRSP is taxable in US, yes, at marginal rates.

This sets up a large unused Cdn tax carryforward which is sometimes difficult to use up.

Since it is gen limit income, the best way I know how to use it is by working for a few weeks in Canada, which if set up correctly will not be taxed in Canada but will be Considered Cdn-sourced by IRS opening up the use of these carried forward credits.

That is whay it is alwys imperative to reduce the CDn tax on RRSP by either 217 if eligible, or by converting to RRIF.

Otherwise you are just better off biting the bullet and using the Cdn tax as a deduction rather than a credit, in the year it is incurred.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cbstewar
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Joined: Sun Nov 13, 2016 9:59 am

Post by cbstewar »

Hi Nelson, I am back with another question for you. Again, our background is we left Canada in 2007 and became US citizens last year.

We have "investment in account values" at departure for our RSP accounts which will reduce our US taxes when we start RRIF RMDs but expect the CRA WHT to exceed the US tax. On its own, this would generate unused foreign tax credits.
Our LIRA account when we start LRIF RMDs will be fully taxed at our US ordinary tax rate and will exceed the CRA WHT.

My math (at this point) suggests that the US tax on the combined LRIF/RRIF RMDs would exceed the CRA WHT, allowing the full CRA WHT to be claimed as a foreign tax credit. I am assuming for the RMDs a 15% CRA WHT rate.

My questions: Does this make sense to you? Am I doing this right? Or what am I missing?

As always, thanks in advance!

Brent in Ohio

An earlier response you had made triggered the question ...
[quote="nelsona"]While RRSP withdrawals by residents of US are indeed taxed at 25% by CRA, typically only a small portion of the RRSP is taxable in US, yes, at marginal rates.

This sets up a large unused Cdn tax carryforward which is sometimes difficult to use up.

Since it is gen limit income, the best way I know how to use it is by working for a few weeks in Canada, which if set up correctly will not be taxed in Canada but will be Considered Cdn-sourced by IRS opening up the use of these carried forward credits.

That is whay it is alwys imperative to reduce the CDn tax on RRSP by either 217 if eligible, or by converting to RRIF.

Otherwise you are just better off biting the bullet and using the Cdn tax as a deduction rather than a credit, in the year it is incurred.[/quote]
Brent in Ohio
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Sounds right. You can decide on a year by year basis if the credit is better than the deduction. Of course, if you don't itemize, you might as well carry forward the credit.

Don't forget that at some poit your CPP and OAS will be taxable in US and not in Canada, but will still be considered Cdn-sourced, so that will be another way of boosting your Cdn-source income without adding unusable Cdn tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
cbstewar
Posts: 9
Joined: Sun Nov 13, 2016 9:59 am

Post by cbstewar »

Thanks for your response, Nelson.

Good advice on the CPP/OAS income.

I will echo what many here have already stated, you are a valuable sounding board!
Brent in Ohio
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