I’ve done my own research with the help of this forum and the internet and I think I know how this should be done, but I’m not 100% sure. I’m a US citizen living in Canada with interest, dividend and capital gain income from investments.
My understanding of how this should be handled on my Canadian return is as follows:
- Dividends are considered US source and I can claim a FTC up to the maximum treaty rate of 15% on my T1. Anything over the maximum 15% CAN’T be deducted on line 232.
- Capital gains are considered Canadian source and I can’t claim a FTC at all. They are simply taxed the exact same way as Canadian capital gains.
- Interest is considered US source, but I can’t claim a FTC at all because the treaty rate is 0%. I also don’t think I can claim a deduction on line 232, but I’m not so sure.
With regards to the deduction on line 232, I assume this refers to a section 20(11) or 20(12) deduction (as per the two references below). If so, my interpretation is I can never claim any sort of deduction under 20(11) for either interest and dividends from a treaty country like the US, but I’m not so sure about 20(12). Maybe I can for interest? I think the first link is saying I can claim a 20(12) deduction up to a maximum of 15%???
http://support.drtax.ca/dtmax/eng/kb/dt ... 1/g411.htm
http://wolterskluwertaxcentre.intellico ... s-reality/
Can anyone help with this please?
Us Citizen FTC Investment Income
Moderator: Mark T Serbinski CA CPA
You are mostly correct.
The first thing you need to determine is your US taxrate before applying any 1116s.
Dividends:
Only dividends from US companies are US-sourced (wasn't clear from your post). If your dividend taxrate on your 1040 (taking into account if they are qualified or non-qualified) is what you can claim as a tax credit on your Cdn return, upto 15%. if the tax rate on these dividends is OVER 15%, you CAN claim the extra on line 232, and also claim a tax credit on 1116 by re-sourcing the dividends until you lower the tax to 15.
the Cdn tax on Cdn dividends are handled by a normal passive 1116.
Interest: US interest is not taxable to non-residents, so no tax credit can be taken in Canada. Relief again comes from your re-sourced 1116 until the tax is zeroed.
Cdn tax on Cdn interest is handled on your passive 1116.
Cap gains: Unless the stock is from US real estate or resources, it is Cdn-sourced. So only those would be treated as US-sourced, with Canada giving credit.
Cdn tax on all other gains would be handled by the passive 1116.
So, the only time you would claim 232 is if your dividend tax arte as determined on your 1040 was more than 15%. Not quite what you said, but it is explained in the drtax page as such.
The explanation on Wolters doesn't apply to US taxpayers because the treaty, while it allows you to recover the excess from US (by the re-sourced 1116), the treaty ALSO requires Canada to allow the deduction on 232. Slight benefit reserved to the US/Canada tax treaty probably due to US's citizenship-based taxation.. Article XXIV(5)(a).
All this is moot of course, if your dividend taxrate is below 15%.
The first thing you need to determine is your US taxrate before applying any 1116s.
Dividends:
Only dividends from US companies are US-sourced (wasn't clear from your post). If your dividend taxrate on your 1040 (taking into account if they are qualified or non-qualified) is what you can claim as a tax credit on your Cdn return, upto 15%. if the tax rate on these dividends is OVER 15%, you CAN claim the extra on line 232, and also claim a tax credit on 1116 by re-sourcing the dividends until you lower the tax to 15.
the Cdn tax on Cdn dividends are handled by a normal passive 1116.
Interest: US interest is not taxable to non-residents, so no tax credit can be taken in Canada. Relief again comes from your re-sourced 1116 until the tax is zeroed.
Cdn tax on Cdn interest is handled on your passive 1116.
Cap gains: Unless the stock is from US real estate or resources, it is Cdn-sourced. So only those would be treated as US-sourced, with Canada giving credit.
Cdn tax on all other gains would be handled by the passive 1116.
So, the only time you would claim 232 is if your dividend tax arte as determined on your 1040 was more than 15%. Not quite what you said, but it is explained in the drtax page as such.
The explanation on Wolters doesn't apply to US taxpayers because the treaty, while it allows you to recover the excess from US (by the re-sourced 1116), the treaty ALSO requires Canada to allow the deduction on 232. Slight benefit reserved to the US/Canada tax treaty probably due to US's citizenship-based taxation.. Article XXIV(5)(a).
All this is moot of course, if your dividend taxrate is below 15%.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thank you so much for the tremendous explanation.
1) If I understand you correctly, for US source dividends on the Canadian side, I can take a FTC for 15% AND a deduction for the excess over 15% on line 232 (assuming of course that my US tax rate on the dividends is higher than 15% to begin with).
After you provided the applicable treaty article, I found this example, which seems to explain precisely what you are saying. I haven’t wrapped my head around the resourcing on the US side yet, but I will study this some more after I nail down the Canadian side first.
https://books.google.ca/books?id=EymIpl ... ty&f=false
The Dr tax page seems to contradict this, which is why I misunderstood this to begin with; unless I’m interpreting it incorrectly. In footnote #1 for the 20(11) deduction, it says you can only take the deduction if the income derives from a country WITHOUT a tax treaty. So, I assumed no for 20(11) because CAN/US does have a tax treaty. Footnote #2 says yes, but only for the portion that does not exceed 15%, which would be zero would it not? Or does none of this matter because Article XXIV(5)(a) trumps both of these?
2) For US source interest income on the Canadian side, I can’t take a FTC OR a deduction on line 232, is that correct?
Thanks again!
1) If I understand you correctly, for US source dividends on the Canadian side, I can take a FTC for 15% AND a deduction for the excess over 15% on line 232 (assuming of course that my US tax rate on the dividends is higher than 15% to begin with).
After you provided the applicable treaty article, I found this example, which seems to explain precisely what you are saying. I haven’t wrapped my head around the resourcing on the US side yet, but I will study this some more after I nail down the Canadian side first.
https://books.google.ca/books?id=EymIpl ... ty&f=false
The Dr tax page seems to contradict this, which is why I misunderstood this to begin with; unless I’m interpreting it incorrectly. In footnote #1 for the 20(11) deduction, it says you can only take the deduction if the income derives from a country WITHOUT a tax treaty. So, I assumed no for 20(11) because CAN/US does have a tax treaty. Footnote #2 says yes, but only for the portion that does not exceed 15%, which would be zero would it not? Or does none of this matter because Article XXIV(5)(a) trumps both of these?
2) For US source interest income on the Canadian side, I can’t take a FTC OR a deduction on line 232, is that correct?
Thanks again!
I'll leave my original explanation.
Are you sure your dividend tax arte in US exceeds 15%. That isn't easy to do. Remember you have to use your effective rate for non-qualified dividends or the rate prescribed for qualified dividends.
I'd be curious to see how you figured this was greater than 15% on your first-run 1040.
Are you sure your dividend tax arte in US exceeds 15%. That isn't easy to do. Remember you have to use your effective rate for non-qualified dividends or the rate prescribed for qualified dividends.
I'd be curious to see how you figured this was greater than 15% on your first-run 1040.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Ah, thank you so much for pointing out this very important oversight on my part. Most of my div's are qualified and taxed at a much lower rate than 15%. So a deduction on line 232 is not even applicable to me.
I do however have US source interest income, which I'm still not 100% clear on. Based on your response I now know I can't claim a FTC for this, but what I'm not clear on is if I can claim a deduction on line 232 for this. If I can, do I claim 100% or only the amount over 15%?
Can you please, please confirm this for me, it's really tying me up in knots.
Jeff
I do however have US source interest income, which I'm still not 100% clear on. Based on your response I now know I can't claim a FTC for this, but what I'm not clear on is if I can claim a deduction on line 232 for this. If I can, do I claim 100% or only the amount over 15%?
Can you please, please confirm this for me, it's really tying me up in knots.
Jeff
I already did.
From my original answer:
"Interest: US interest is not taxable to non-residents, so no tax credit can be taken in Canada. Relief again comes from your re-sourced 1116 until the tax is zeroed.
Cdn tax on Cdn interest is handled on your passive 1116.
...
"So, the ONLY TIME you would claim 232 is if your dividend tax rate as determined on your 1040 was more than 15%. Not quite what you said, but it is explained in the drtax page as such."
Do you see any mention of 232 with regards to interest? I do not believe, even is the interest rate was more than 15% computed on your initial 1040 (say 17%), that you would claim the overage on line 232 (2%), and then claim the entire amount (17%) on re-sourced 1116.
But if you wish to interpret it that way, go ahead.
From my original answer:
"Interest: US interest is not taxable to non-residents, so no tax credit can be taken in Canada. Relief again comes from your re-sourced 1116 until the tax is zeroed.
Cdn tax on Cdn interest is handled on your passive 1116.
...
"So, the ONLY TIME you would claim 232 is if your dividend tax rate as determined on your 1040 was more than 15%. Not quite what you said, but it is explained in the drtax page as such."
Do you see any mention of 232 with regards to interest? I do not believe, even is the interest rate was more than 15% computed on your initial 1040 (say 17%), that you would claim the overage on line 232 (2%), and then claim the entire amount (17%) on re-sourced 1116.
But if you wish to interpret it that way, go ahead.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Ok thanks so much for explaining this further.
Based on your original response, I assumed that I could not claim anything on line 232, because you did not specifically mention it, but then I subsequently came across the following post on this forum and got even more confused.
viewtopic.php?t=11121&highlight=232
"So, in answer to your other question, US bank interest IS US-sourced, so the US tax denied can go on 232"
Has your thinking recently changed on this?
Jeff
Based on your original response, I assumed that I could not claim anything on line 232, because you did not specifically mention it, but then I subsequently came across the following post on this forum and got even more confused.
viewtopic.php?t=11121&highlight=232
"So, in answer to your other question, US bank interest IS US-sourced, so the US tax denied can go on 232"
Has your thinking recently changed on this?
Jeff
I will report back for everyone after my return has been processed.
I appreciate all your help.
Make no mistake, by reading some of your other posts, it’s evident that you are one of the most knowledgeable cross border tax minds around. However, don't you think it would be more responsible to admit that you are not 100% sure about something before providing potentially incorrect information to someone?
Jeff
I appreciate all your help.
Make no mistake, by reading some of your other posts, it’s evident that you are one of the most knowledgeable cross border tax minds around. However, don't you think it would be more responsible to admit that you are not 100% sure about something before providing potentially incorrect information to someone?
Jeff
I offer no guarantee for my opinions- OPINIONS.. However, when I say *I believe* such and such, that my way of saying is not 100%. It is the internet after all.
I did give you both options.
And there is interpretation involved here. You can pay a lot of money for two different opinions. And the experts at your software have theirs too. When I begin collecting money, I will take the time to firm up these opinions. My clients won't have the option at that point to have 100's of other people look at may decision and comment on it. That is why I NEVER respond to private emails on these matters.
I know that this is not the point, but How much interest are we talking about here? Feel free to claim that max and have CRA come back if they want.
I have for years said that I am not a pro. it is at the bottom of every post (except at tax time, When I change it to avoid these long threads that seem not to interst anyone bu the original poster, who is waiting until the last weeks to file.
I did give you both options.
And there is interpretation involved here. You can pay a lot of money for two different opinions. And the experts at your software have theirs too. When I begin collecting money, I will take the time to firm up these opinions. My clients won't have the option at that point to have 100's of other people look at may decision and comment on it. That is why I NEVER respond to private emails on these matters.
I know that this is not the point, but How much interest are we talking about here? Feel free to claim that max and have CRA come back if they want.
I have for years said that I am not a pro. it is at the bottom of every post (except at tax time, When I change it to avoid these long threads that seem not to interst anyone bu the original poster, who is waiting until the last weeks to file.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Fair enough. I really do appreciate you helping me out here.
I will point out however that your original post used no such language. You said "So, the only time you would claim 232 is if your dividend tax rate as determined on your 1040 was more than 15%". If I had not inquired about this further, I would have been led to believe that interest income for sure can't be deducted on line 232.
It was not until I inquired about this further that you started using language such as "I do not believe" etc. You also got pretty snippy about me asking for a bit of clarification on this.
It's clear to me now that the reason you likely did not address the interest directly in your original response is because you were not 100% sure about it. Furthermore, as of right now, there have been 166 people that have read this post. Based on this, I have to presume others are also getting value from this post, not just me.
I'm not trying to be a jackass or unappreciative. I just feel it was a bit misleading, that's all. But I do realize and appreciate that you offer a tremendous amount of your time on this forum and every response can't be perfect.
In any event, thanks again for your assistance with this difficult confusing matter. You have definitely made this much easier for me.
I will point out however that your original post used no such language. You said "So, the only time you would claim 232 is if your dividend tax rate as determined on your 1040 was more than 15%". If I had not inquired about this further, I would have been led to believe that interest income for sure can't be deducted on line 232.
It was not until I inquired about this further that you started using language such as "I do not believe" etc. You also got pretty snippy about me asking for a bit of clarification on this.
It's clear to me now that the reason you likely did not address the interest directly in your original response is because you were not 100% sure about it. Furthermore, as of right now, there have been 166 people that have read this post. Based on this, I have to presume others are also getting value from this post, not just me.
I'm not trying to be a jackass or unappreciative. I just feel it was a bit misleading, that's all. But I do realize and appreciate that you offer a tremendous amount of your time on this forum and every response can't be perfect.
In any event, thanks again for your assistance with this difficult confusing matter. You have definitely made this much easier for me.