Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Eligibility for foreign tax credit - is a foreign tax credit available to a Canadian resident who voluntarily submits to a foreign withholding tax?
Position: No.
Reasons: Payment is not eligible for the foreign tax credit unless it is compulsory. A voluntary payment does not qualify as a tax.
XXXXXXXXXX 2008-026422
D. Zhang
(613) 957-2104
January 21, 2008
Dear XXXXXXXXXX :
Re: Foreign Tax Credit
We are writing in reply to your email of December 29, 2007 in which you requested our comments on the availability of a federal foreign tax credit. We understand that you are a resident of Canada and you will be receiving an honorarium from a U.S. XXXXXXXXXX. You stated that the U.S. XXXXXXXXXX paying the honorarium would not be required to withhold tax on the honorarium provided that you apply for and receive a U.S. Taxpayer Identification Number. If you do not obtain this identification number, U.S. withholding tax at 30% will apply. You would like to know whether you could choose to pay the U.S. withholding tax and then claim a foreign tax credit on your Canadian tax return.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.
In general terms, a person may claim a foreign tax credit equal to the lesser of the amount of the tax paid for the year to a government of a foreign country and the portion of Canadian tax otherwise payable for the year that relates to the person's income from that country. To qualify for the foreign tax credit, the amount paid to the foreign government must be compulsory (i.e., it must be required to be paid). Accordingly, if you submit to the U.S. withholding tax on the honorarium by not applying for a U.S. Taxpayer Identification Number, the amount withheld from the honorarium would not qualify for the foreign tax credit.
If you have any questions or require any further information, please contact Devon Zhang at 613-957-2104.
Yours truly,
Daryl Boychuk
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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