Docket: 2025-3683(IT)I

BETWEEN:

ARIELA STERN,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

Appeal heard on June 30, 2026, at Vancouver, British Columbia

Before: The Honourable Justice David E. Graham

Appearances:

JUDGMENT

1. The appeal of the assessment of the Appellant’s 2021 tax year is quashed.

2. The appeal of the assessment of the Appellant’s 2022 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was entitled to a foreign tax credit in respect of:

• (a)withholding tax she paid to Germany in the amount of $2,483.95 in the year in respect of $9,605.77 in dividends earned on shares of German companies; and

• (b)withholding tax she paid to Switzerland in the amount of $1,558.28 in the year in respect of $4,506.18 in dividends earned on shares of Swiss companies.

3. The appeal of the reassessment of the Appellant’s 2023 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was entitled to a foreign tax credit in respect of:

• (a)withholding tax she paid to Germany in the amount of $2,698.33 in the year in respect of $10,271.24 in dividends earned on shares of German companies; and

• (b)withholding tax she paid to Switzerland in the amount of $1,802.15 in the year in respect of $5,094.87 in dividends earned on shares of Swiss companies.

4. The appeal of the reassessment of the Appellant’s 2024 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was entitled to a foreign tax credit in respect of:

• (a)withholding tax she paid to Germany in the amount of $3,065.44 in the year in respect of $11,580.78 in dividends earned on shares of German companies; and

• (b)withholding tax she paid to Switzerland in the amount of $1,761.07 in the year in respect of $5,008.55 in dividends earned on shares of Swiss companies.

Signed this 9th day of July 2026.

“David E. Graham”

Citation: 2026 TCC 131

Date: 20260709

Docket: 2025-3683(IT)I

BETWEEN:

ARIELA STERN,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

REASONS FOR JUDGMENT

Graham J.

[1] Ariela Stern is a Canadian resident. She holds investment accounts in the United States and Switzerland. When she filed her tax returns for her 2021 to 2024 taxation years, she claimed foreign tax credits in respect of withholding taxes paid on dividend income that she earned in those accounts. The Minister of National Revenue denied the credits and Ms. Stern appealed.

2021 Quashed

[2] At the beginning of the trial, I quashed the appeal of the 2021 taxation year on the basis that Ms. Stern had not met a precondition for filing the appeal as she had not filed a valid notice of objection.

Foreign Tax Credits (Germany and Switzerland)

[3] The ability to claim a foreign tax credit comes from subsection 126(1) of the Income Tax Act. That subsection contains a complex calculation. In simple terms, the subsection allows a Canadian resident taxpayer to claim a credit against their tax otherwise payable in an amount equal to the non-business-income tax paid by the taxpayer for the year to the government of a foreign country. The only element of the calculation issue in this appeal is whether Ms. Stern paid tax to the government of a foreign country in the years in question.

[4] The Minister of National Revenue made an assumption of fact that no such tax was paid by Ms. Stern. The burden is on Ms. Stern to demolish that assumption. She has satisfied that burden.

[5] I heard the evidence of Ms. Stern’s husband, Alexander Talalayevsky. He manages the couple’s investments and was more familiar with what had happened in Ms. Stern’s accounts. I found Mr. Talalyevsky to be credible.

[6] Based on Mr. Talalayevsky’s evidence and the documentation that he provided, I am satisfied that:

• a)withholding tax was paid to the government of Germany on dividend income earned on shares of German companies held in Ms. Stern’s US and Swiss accounts; and

• b)withholding tax was paid to the government of Switzerland on dividend income earned on shares of Swiss companies held in Ms. Stern’s Swiss account.

[7] The Respondent says that it is not enough that Ms. Stern show that tax was withheld, but rather that Ms. Stern must show that she actually had to pay tax to Germany and Switzerland. The Respondent argues that the only way for Ms. Stern to show this is to produce tax assessments from those countries.

[8] The Respondent’s position is contrary to the Canada Revenue Agency’s own policy. Income Tax Folio S5-F2-C1 (Foreign Tax Credits) sets out the documentary evidence that the CRA expects from a taxpayer claiming a foreign tax credit. Paragraph 1.45 specifically contemplates a situation like Ms. Stern’s where income tax is withheld at source. It states that “[i]f a taxpayer’s foreign tax liability is settled by an amount withheld by the payer of the related income (that is, in a way which is analogous to tax under Part XIII of the Act), a copy of the foreign tax information slip is usually satisfactory. In most other cases, a copy of the tax return filed with the foreign government is required together with copies of receipts or documents establishing payment.”

[9] Withholding taxes on dividend income is certainly analogous to tax under Part XIII. The Respondent did not explain why the Minister did not consider the foreign tax information slips provided by Ms. Stern to be satisfactory. It does not appear to have been because of concerns about their authenticity or accuracy. The Respondent raised neither of those concerns when the slips were entered into evidence.

[10] Mr. Talalayevsky testified that Ms. Stern does not have tax assessments from Germany or Switzerland because Ms. Stern earned too little income in those countries to justify the expense of having the returns prepared.

[11] The Respondent took me to two decisions of this Court that highlight the risks of relying on taxes withheld to determine whether tax was paid to a foreign government (Arsove v. The Queen[1] and Zhang v. The Queen[2]). In both those decisions, while taxes had initially been withheld, when the taxpayers filed their tax returns with the foreign government, it turned out that they did not have to pay any tax to the foreign government because they qualified for various credits. These cases stand for the proposition that a taxpayer cannot claim a foreign tax credit if they did not, in fact, pay foreign tax. They do not, however, stand for the proposition that taxpayers must provide foreign tax assessments in order to claim foreign tax credits.

[12] Looking at the evidence as a whole, I am satisfied that Ms. Stern paid withholding tax to both Germany and Switzerland in the following amounts in the following years calculated as follows:

[13] Ms. Stern recognizes that both Germany and Switzerland withheld tax at a rate greater than the 15% rate prescribed by Canada’s respective tax treaties with those countries. She is not seeking to recover the excess, just the 15% she is entitled to.

[14] Based on the evidence provided to me, the following is my calculation of the dividend income Ms. Stern earned on shares in German and Swiss companies in the years in question:

[15] I will order the Minister to recalculate Ms. Stern’s foreign tax credits taking the above withholding taxes and dividend income into account.

Withholding Tax Paid to Canada

[16] Ms. Stern used her Swiss account to invest in shares in various Canadian public companies. Since Ms. Stern’s account was outside of Canada, when those companies paid dividends, Canadian withholding tax was applied.

[17] Based on Mr. Talalayevsky’s evidence and the documentation that he provided, I am satisfied that Ms. Stern paid the following Canadian withholding tax:

[18] Ms. Stern recognizes that these amounts do not qualify for foreign tax credits because they were not paid to a foreign government. She just wants the Minister to acknowledge that she paid the tax. She argues, and I agree, that if the Minister does not give her credit for the Canadian tax that she has already paid, she will be subject to double taxation.

[19] Ms. Stern did not direct me to any provision of the Income Tax Act that would entitle her to reduce her income on account of withholding taxes paid to the government of Canada.

[20] It seems to me that Ms. Stern is, in essence, seeking a refund on the basis that she has overpaid her taxes for those years. The application of Canadian taxes withheld at source to reduce the tax owing by a taxpayer is a matter for judicial review. It is not within the jurisdiction of this Court.

Other Adjustments

[21] The Minister also reassessed Ms. Stern to impose late filing penalties in 2022 and to deny carrying charges she claimed in 2023 and 2024. Ms. Stern does not dispute those adjustments.

Signed this 9th day of July 2026.

“David E. Graham”

APPEARANCES:

COUNSEL OF RECORD:

For the Appellant: