CRA maximum FTC

cfn2007 · Post by **cfn2007** » Sat Apr 05, 2008 10:37 am

What is the maximum tax credit that CRA will allow for US dividends? How about interest?

For some reason I always thought the maximum tax credit on this these types of US income (per treaty) was 15% but I just read on another thread that the CRA maximum is only 10%.

Carson · Post by **Carson** » Sat Apr 05, 2008 12:36 pm

Per Treaty, 15% on dividends, 10% on interest.

If you are a US citizen, you can also get a 20(11)/(12) deduction for any excess US tax paid on US interest/dividens, AND the US may allow a Treaty based additional foreign tax credit on the US return.

cfn2007 · Post by **cfn2007** » Sat Apr 05, 2008 1:57 pm

Thanks Carson! Yes, I am a US citizen living in Canada. Excuse my ignorance but what is a 20(11)/(12) deduction?

I think I'm now more confused than previously! It was my understanding that this is the process to follow (based largely on reading through Nelsona's comments on old threads):

1) I do both my Canada and US returns without any foreign tax credits/deductions
2) Take a 15% FTC on my Canada return for all US-sourced dividends
3) I cannot take any FTC on my Canada return for US interest or capital gains (since these are only due to US citizenship)
4) As a Canadian resident, all capital gains (except "real property" in US) are considered Canadian so I cannot take a FTC in Canada
5) Take passive income FTC on US form 1116 for taxes paid to Canada on CG (on all securities) or dividend taxes on Canadian securities
6) Take "re-source" foreign tax credit on 1116 for all taxes paid to canada on interest or US mutual fund CG distributions (since these are not considered CG's in Canada)

Does this all make sense? Not sure where the 20(11)/(12) deduction fits into this process.

Thanks!

nelsona · Post by **nelsona** » Sat Apr 05, 2008 3:58 pm

Just one thing I would add: Your FTC cannot be greater than your effective US taxrate. So if your total income is $100,000 and your overall tax is $12000, then your FTC on the interst portion cannot be more than 12%

carson is correct that any excess tax you paid in US that you cannot deduct because of the treaty limit becomes a deduction on your Cdn tax return AS WELL AS being eligible for the 're-sourcing' technique on 1116.

It's just that I highly doubt that your OVERALL taxrate surpasses 10%, never mind 15%.

You can't determine the US tax based on 'the amount my tax changes when I add my interest and/or dividends'. Its the blended, effective rate, not marginal rate that counts.

cfn2007 · Post by **cfn2007** » Sat Apr 05, 2008 4:12 pm

The more I think about it, why would Canada's 10% tax credit limit on US interest even be relevant? I thought the Canada didn't allow any FTC on US interest. I would simply pay Canada any tax owed and then resource on my US return to recover all the tax. (Or all but 10% of the Canadian tax???)

Another quirk I also thought about is Short Term capital gains distributions on US funds. These are an oddity because they are reported on 1099's as "ordinary dividends". Should they be treated like any other US sourced dividend or do these need to be "resourced" in the US like any other capital gain.

Final question, which is more of a procedural one is what US brokerage forms/data to include with Canadian return? Do I attach a US 1099 on top of page 3 of a T1 (similar to T5's) or do I need to also include a breakdown of the 1099 income based on which part of the year I was a Canadian resident?

Carson · Post by **Carson** » Sun Apr 06, 2008 9:28 am

US government and bank interest is not subject to a withholding tax, therefore Canada will not provide a FTC. But other forms of US source interest are subject to withholding (or were in 2007), and therefore a FTC on your T1 would be available. It's not so cut and dried.

CRA doesn't require your 1099's.