Hi,
I'm a US citizen residing and working in Canada. I've gone through the previous threads on how to report US-source capital gains on the Canadian return, but am unclear about one issue. My understanding based on prior threads is that the tentative US tax on such capital gains (i.e., the US tax that would be owing before any FTCs but including the FEIE) can be deducted on line 232 of the Canadian return. What I'm not clear about is whether this deduction can still be taken if the final US tax (the tax actually owing after all FTCs) is zero. More generally, the line 232 deduction could be greater than the actual US tax paid, is that correct? This is confusing because deductions can usually only be taken for actual taxes paid (for example, the CRA language for the section 20(12) deduction refers to foreign taxes paid). Any help on this issue would be much appreciated.
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US-source capital gains treatment
Moderator: Mark T Serbinski CA CPA
When you say "US-sourced", what do you mean? For FTC purposes, only real estate and some resource gains are considered US-sourced, and eligible for any FTC on the Cdn return, and it would be as you describe.
In the FTC world, it is ALWAYS the tentative tax "tax otherwise payable" that is used for FTC. Even the treaty language acknowledges this. For obvious reasons, one could iterate infinitely without ever coming to a conclusive FTC on both returns.
In the FTC world, it is ALWAYS the tentative tax "tax otherwise payable" that is used for FTC. Even the treaty language acknowledges this. For obvious reasons, one could iterate infinitely without ever coming to a conclusive FTC on both returns.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
No, since gains, other than those arising from US real estate or a US-based business may not be taxed by IRS (except for the fact that you are a US citizen), o FTC is thus given for these gains.
Moreover, no deduction is given either, since the most you would be able to deduct would be the lesser of the actual US tax, or the treaty rate , but the treaty rate for gains is 0%.
The remedy is completely on the US side, by filing an 1116 reporting the Cdn tax.
Moreover, no deduction is given either, since the most you would be able to deduct would be the lesser of the actual US tax, or the treaty rate , but the treaty rate for gains is 0%.
The remedy is completely on the US side, by filing an 1116 reporting the Cdn tax.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
In a previous thread on the treatment of cap gains arising in US, you had mentioned that:
"CAP GAINS:
Similarly, cap gains tax is not creditable, nor is it considered US-sourced. So the US tax you paid goes on line 256, and you claim it as passive on a separate 1116. It is foreign income. Only US real estate would be considered US-sourced, and all US tax elible for FTC."
Was that incorrect? Just want to clarify so I don't screw up my return. Thanks very much for your help! Really appreciate it.
"CAP GAINS:
Similarly, cap gains tax is not creditable, nor is it considered US-sourced. So the US tax you paid goes on line 256, and you claim it as passive on a separate 1116. It is foreign income. Only US real estate would be considered US-sourced, and all US tax elible for FTC."
Was that incorrect? Just want to clarify so I don't screw up my return. Thanks very much for your help! Really appreciate it.
You have to give me the URL, but, yes, there has been a change in my view of this.
But even what you quoted is mostly correct. US cap gains tax is not creditable except for US real estate.
What was incorrect was the deduction aspect.
But even what you quoted is mostly correct. US cap gains tax is not creditable except for US real estate.
What was incorrect was the deduction aspect.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
This might giove a better answer:
http://forums.serbinski.com/viewtopic.p ... hlight=232
"In Canada, I can deduct only up to 15% of the US tax, or $15. (At first I thought I could deduct all US tax from Canada because it's interest and not dividends, but canatech says: "Canada shall allow a deduction from (credit against) Canadian tax for U.S. tax paid or accrued with respect to the dividends, interest, royalties, but such credit need not exceed 15 percent of the gross amount of such items income that have been included in computed income for Canadian tax purposes.")"
So, in answer to your other question, US bank interest IS US-sourced, so the US tax denied can go on 232. Then you use the 1116 re-sorced income provision to reduce the US tax to zero.
The cap gains are NOT US sourced, therefore the difference.The dienial is not because soley because you are a USC, it is because Canada (and US by treaty) don't view the income as US-sourced.
http://forums.serbinski.com/viewtopic.p ... hlight=232
"In Canada, I can deduct only up to 15% of the US tax, or $15. (At first I thought I could deduct all US tax from Canada because it's interest and not dividends, but canatech says: "Canada shall allow a deduction from (credit against) Canadian tax for U.S. tax paid or accrued with respect to the dividends, interest, royalties, but such credit need not exceed 15 percent of the gross amount of such items income that have been included in computed income for Canadian tax purposes.")"
So, in answer to your other question, US bank interest IS US-sourced, so the US tax denied can go on 232. Then you use the 1116 re-sorced income provision to reduce the US tax to zero.
The cap gains are NOT US sourced, therefore the difference.The dienial is not because soley because you are a USC, it is because Canada (and US by treaty) don't view the income as US-sourced.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best