Canadian Stocks in Roth IRA for Dividends

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kev_indigo
Posts: 10
Joined: Fri Apr 17, 2015 4:18 pm
Location: Canada

Canadian Stocks in Roth IRA for Dividends

Post by kev_indigo »

Situation is as follows:

John Doe is a dual citizen CA/US, dual resident CA/US, originally from US, lived in Canada 20+ years, worked in both countries.
John Doe has a Roth IRA in a US account that is taxable in Canada due to making contributions after arriving in Canada.

The idea is to purchase Canadian qualified securities in the US based Roth IRA account that generate dividend income as qualified Canadian dividends.

Earned dividends would not be reportable or taxable in US because it is a Roth. Strategy is to take advantage of the Canadian dividend tax credit to reduce taxes owed to CRA on the Canadian return.

Questions:

(1) Is it possible to get a T5 produced for the US based Roth IRA, to report the grossed up dividends and tax credit on a Canadian return? My guess is no, that no US brokerage would be willing (or able?) to do this.

(2) Short of having an official T5, is there other documentation that can be submitted with the Canadian return that the CRA will accept in lieu of a T5? Can a taxpayer do their own calculations on the gross-up and credit and just use those values on their return?

(3) Has anyone on here ever done this, or know of someone who has successfully done this?

Thanks!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Canadian Stocks in Roth IRA for Dividends

Post by nelsona »

1. No. The income in the Roth ois not reportable, so the there will be no dividend tax credit in any case.

There is no "income" to gross up.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
kev_indigo
Posts: 10
Joined: Fri Apr 17, 2015 4:18 pm
Location: Canada

Re: Canadian Stocks in Roth IRA for Dividends

Post by kev_indigo »

The dividend income in the Roth IRA is not reportable to the IRS in the U.S. so it is unlikely a US brokerage will generate any special statements or T5, other than regular brokerage account statements.

The Roth IRA is taxable in Canada so the dividend income in the Roth is taxable in Canada and self-reported only to the CRA (no 1099 or T5 available).

A friend of mine is trying this, to claim the dividend tax credit on qualified Canadian dividends in his Roth. We shall see if the CRA will accept this.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Canadian Stocks in Roth IRA for Dividends

Post by nelsona »

How is the Roth taxable in Canada? Did he fail to obey the rules on contributions? If not it isn't taxable, by treaty.

And if this is the case, I *believe* the income is reportable as "ordinary" pension income, much like reportable income in an RRSP, not as cap gains and dividends
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
kev_indigo
Posts: 10
Joined: Fri Apr 17, 2015 4:18 pm
Location: Canada

Re: Canadian Stocks in Roth IRA for Dividends

Post by kev_indigo »

In this situation the Roth is taxable in Canada due to contributions that were made to the Roth IRA after he moved to Canada.

Unfortunately, I am in the same situation. I didn't know about the rules for "Canadian" contributions to a Roth IRA after moving to Canada until after I did it. Live and learn.

By the way, I can report that my friend was eventually successful in getting the CRA to allow the dividend tax credit on this Canadian company stock dividends held in his Roth IRA in the U.S. He had a couple rounds of back and forth with the CRA, but once he submitted sufficient documentation from his U.S. account proving the stocks were Canadian stocks with qualified dividends under CRA rules, they accepted it and allowed the credit on his Canadian T1 return.

I don't know why the dividends from the Roth were reported as dividend income rather than ordinary pension income, I am not familiar with these rules.
kev_indigo
Posts: 10
Joined: Fri Apr 17, 2015 4:18 pm
Location: Canada

Re: Canadian Stocks in Roth IRA for Dividends

Post by kev_indigo »

I should correct my earlier reply, I do understand why the dividend tax credit is applicable when the Roth IRA is taxable in Canada.

When your U.S. Roth IRA account is deemed a taxable account in Canada due to having made a Canadian contribution, you pay Canadian taxes on the dividends earned in the year the dividends were received in the Roth IRA account.

Income from the Roth IRA is not considered as ordinary pension income until you withdraw the funds from the Roth IRA account.

It is definitely worthwhile to take the Canadian dividend tax credit when you hold Canadian stocks in your taxable Roth IRA account.
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