Ask Tax Question

I am a US citizen and resident. I own 1/3 of the shares of a private Canadian corporation in the manufacturing business. I have agreed to sell-out by having the company redeem my shares. They tell me that this will result in 15% Canadian tax. Is that right? I thought that capital gains that Americans earn on shares of Canadian corporations are generally exempt from Canadian tax. My CPA here says that I cannot get any credit for this tax in the US.

Cross Border Tax
TaxConnections Members... Answer This Question Want To be One of Our Tax Experts? Register Here

Tax Professional Answers

User Photo
Michael Atlas, CPA, CA
If the shares you own are common shares, it is actually a “purchase for cancellation”, rather than a redemption, since common shares would not normally be redeemable. However, the tax results are the same in either case: under subsection 84(3) of our Income Tax Act, any amount paid by the company in excess of the “paid-up capital” (“PUC”) of the shares is a deemed to be a dividend-not a capital gain. Normally, the PUC of shares in a private corporation is only nominal. Hence virtually all of the amount you will receive will be a dividend that is subject to non-resident withholding tax at a rate of 15% under Article X(2)(b) of the Canada-US Tax Convention (“Treaty”). In this connection, it is significant to note that under Article X(3), as long as the amount is treated as a dividend under Canadian tax law, it is treated as a dividend for the purposes of the Treaty. You should be able to claim a foreign tax credit in the US for the 15% Canadian tax, even if the gain is not foreign sourced under the Internal Revenue Code. You do that by electing to claim foreign tax credits based on the sourcing rules found in Article XXIV(3) of the Treaty,
Leave a Comment 116 weeks ago

Meet Leading Tax Advisors

User Photo Kathryn Morgan

Bossier City, Louisiana, USA

Enrolled Agent, Master Tax Advisor

User Photo Peter J. Scalise

New York, New York, USA

Federal Tax Credits & Incentives Practice Leader

User Photo John Stancil

Lakeland, Florida, USA

Tax Advisor/CEO

User Photo John Dundon, II EA

Denver, Colorado, USA

Tax Director

User Photo Steven Potts JD EA IAR

Fullerton, California, USA


User Photo Devon McCarthy FCCA, EA

Sanford, Florida, USA


User Photo Caran Ebert, CPA

Topanga, California, USA

Tax Advisor

User Photo Lisa Nason CPA, MST

Greenville, South Carolina, USA

Managing Shareholder

User Photo Gary Carter, PhD, MT, CPA

Edina, Minnesota, USA



Santa Clara, California, USA

Tax Principal - President

User Photo Bill Robinson, CPA

Chattanooga, Tennessee, USA


User Photo Hugo Van Zyl

Stellenbosch, South Africa

Exchange Control & Master Tax Practitioner (SA)

User Photo Douglas Stransky

Boston, Massachusetts, USA

Tax Partner, International Tax

User Photo Larry Stolberg, CPA, CA

Toronto Mississauga Oakville Burlington Hamilton, Canada

Tax Specialist

User Photo Gerald Nordland

Phoenix, Arizona, USA


View/Select our Current List of Tax Topics

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Previous PageNext Page

Contact Us Today