Foreign tax credit - distribution from Canadian Pension Plan

1canuck · Post by **1canuck** » Mon Mar 14, 2016 1:52 pm

I am US permanent resident and trying to compute foreign tax credit on form 1116.

My previous employer in Canada no longer exists and since their pension plan is also closing, I received a lump sum distribution of US$ 5,480. The NR tax (25%) was withheld at source (US$1,370).

A. I am unable to get the foreign tax credit if I select option "e" on form 1116 (lump sum distribution, that's what my T4 slip says). The instructions for form 1116 direct me to use the lines from form 4972 to compute the credit.

The Form 4972 is not applicable to me since I was not born before 1936. That said, TaxAct does not generate any foreign tax credit either!

B. But if I check the box for "Passive Income" on Form 1116 - keeping everything else the same - I get the foreign tax credit.

My question is: Can I use the "Passive Income" option for my lump sum distribution to get the foreign tax credit? I never contributed anything to the plan and I was never expecting any income - what I received is very much passive.

nelsona · Post by **nelsona** » Mon Mar 14, 2016 3:21 pm

pension income is considered general limit income, not passive. Forget the lump-sum option, I've never seen it apply to a Cdn pension.

1canuck · Post by **1canuck** » Mon Mar 14, 2016 4:09 pm

Thanks Nelson!

Do I have to (or is it advisable to include) my T4 that indicates this income with my tax forms?

nelsona · Post by **nelsona** » Mon Mar 14, 2016 4:10 pm

IRS never wants any paperwork other than W-2 and 1099. keep for records.

You should be e-filing with your software. Don't do taxes by hand, especially not 1116