CRA lists its requirements for a partner to claim, for FTC purposes, a disproportionate share of withholding tax borne by the partnership

The general CRA policy in Folio S5-F2-C1 is that a Canadian partner is only entitled to claim foreign tax credits based on its pro rata share of the foreign withholding tax borne by the partnership on dividends etc. received by it. If, however, the Canadian partner can provide “sufficient, clear, and unambiguous evidence with his tax return” that the … foreign tax paid by [the] Partnership was computed by reference to his treaty status with [the particular foreign country]” then all of such tax can be claimed by that partner for FTC purposes.

For example, A and B each have a 50% interest in the Partnership, and are resident in Country X and Canada, respectively. On payment of a $1,000 dividend by Xco (resident in Country X) to the Partnership, Xco, as required, withholds $25, calculated as 5% of the $500 portion of the dividend beneficially owned by B.

CRA indicated that, in addition to the evidence of payment of the foreign tax discussed in Folio S5-F2-C1, the partner making such a non-pro rata FTC claim should provide the name, Canadian tax ID number (if any), country of residence, nature and amount of the partnership interest, calculated income allocation and allocated foreign withholding tax amount of each partner – together with evidence demonstrating that the withholding was computed by reference to each partner’s treaty status.

Those drafting partnership agreements might consider this list.

Neal Armstrong. Summary of 8 September 2017 External T.I. 2014-0558601E5 under s. 126(1).