Canada Is Checking Foreign Tax Credits

It is not uncommon for e-filed returns or paper filed returns that claim a credit for US tax for CRA to request verification.

US tax paid per Canadian withholding slips are not requested because the slips are issued  by a Canadian entity. They are looking to US tax claimed per US reporting slips such as W2s, 1099s, 1042s or from the US 1040/1040NR tax returns. US social security tax and medicare (ie., FICA) is creditable if it relates to US source wages or services performed in the US which is evident  on the W2.

Foreign tax credits claimed in respect of US computed from  the US tax return based on determination of what portion of the tax payable of the return relates to US source income that is creditable is usually supportable by submitting to CRA your schedules and copy of the federal (and state where applicable) return. Recently CRA has been requesting transcript which is like our notice of assessment.

Unfortunately, IRS does not issue anything if there is no additional tax liability or  interest/penalties from your US filings. You need to request the transcript by calling the IRS or request it from their website.

Original Post By:  Larry Stolberg


Larry Stolberg, CPA, CA, CPA (South Carolina), has been practicing as a full-time tax specialist for over 30 years, in the Toronto, Ontario Canada and surrounding GTA area with primary emphasis on:

•Corporate restructuring for business owners
•Estate/succession planning
•U.S. expatriate and cross border issues
•Tax efficient planning that will achieve both your short and long term objectives

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2 comments on “Canada Is Checking Foreign Tax Credits

  • Mr Stolberg,

    Could this have something to do with FATCA? Many of us are convinced that because US banks aren’t authorized to collect banking info under FATCA, the IRS has instead provided the CRA with information readily available to the IRS when a US person in Canada reports income earned in the US on a US tax return.

  • I believe the issue is likely that certain US returns that are provided to CRA are not prepared by reputable tax preparers and/or the Canadian returns are not prepared by the same party as the US return.

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