CCPC Dividends

kenrousselle · Post by **kenrousselle** » Tue Jul 26, 2016 8:47 am

Can someone tell me whether CCPC dividends received by a US Citizen living in Canada are taxable in the US?

I believe they would be considered Ordinary Dividends not subject to the Foreign Earner Income Exemption, however, I'm not sure whether the Treaty exempts them from taxation.

Any assistance would be appreciated.

nelsona · Post by **nelsona** » Tue Jul 26, 2016 9:06 am

These are ordinary dividends. There is no treaty exemption

kenrousselle · Post by **kenrousselle** » Tue Jul 26, 2016 11:03 am

Wouldn't they be characterized as Qualified Dividends as they meet the test of:
Qualified Dividends

Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. They should be shown in box 1b of the Form 1099-DIV you receive.

The maximum rate of tax on qualified dividends is:

0% on any amount that otherwise would be taxed at a 10% or 15% rate.

15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39.6%.

20% on any amount that otherwise would be taxed at a 39.6% rate.

To qualify for the maximum rate, all of the following requirements must be met.

The dividends must have been paid by a U.S. corporation or a qualified foreign corporation. (See Qualified foreign corporation , later.)

The dividends are not of the type listed later under Dividends that are not qualified dividends .

You meet the holding period (discussed next).

nelsona · Post by **nelsona** » Tue Jul 26, 2016 12:00 pm

I'll let you figure out if your CPCC is a qualified foreign corporation. Probably is.
Does it really matter, since you will not owe any tax in US anyways after taking foreign tax credit?

kenrousselle · Post by **kenrousselle** » Tue Jul 26, 2016 12:16 pm

Thanks, however, they paid no taxes in Canada as the amount was low enough not to attract any personal taxes after personal exemptions and deductions.

Ken

nelsona · Post by **nelsona** » Tue Jul 26, 2016 12:36 pm

Yes, but what about their other income? These dividends would be lumped with all other passive income they earned, and any Cdn tax paid for the year spread over passive, and general limit income for Foreign tax credit (FTC) purposes.

But if indeed they were not taxable AT ALL in Canada, as I said, if you determine that they are qualified, act accordingly.

They may also have carry forward of FTC from previous years that they could use to cover any tax.

kenrousselle · Post by **kenrousselle** » Tue Jul 26, 2016 1:53 pm

Thanks again. They have no other income as they are a shareholder in their husband's company for which dividends were declared.

Based on all of the research I've done in this case, these dividends appear to be classified as Qualified Dividends based on the company being a qualified foreign corp. and should be taxed accordingly with an offset of FTC if applicable

Does anyone disagree? If so, why?

nelsona · Post by **nelsona** » Tue Jul 26, 2016 2:14 pm

I take it her spouse is not a USC.

kenrousselle · Post by **kenrousselle** » Tue Jul 26, 2016 2:28 pm

No, you are correct, he's a Canadian Citizen.