Arsove – Tax Court of Canada finds that there was no s. 126(1) foreign tax credit for US taxes for which a spurious offsetting U.S. credit had been claimed

A Canadian-resident individual and U.S. citizen was subject to US. income tax of 15% on a distribution to her out of her IRA. However, she filed her U.S. income tax return on the specious basis that the U.S. tax on the distribution was eliminated by a U.S. foreign tax credit, and the IRS accepted the return.

Lamarre ACJ found that, as no U.S. tax was “ultimately imposed” on the taxpayer, no Canadian foreign tax credit was available. She also noted that this result was consistent with “the purpose of the foreign tax credit… to prevent double taxation.”

Neal Armstrong. Summary of Arsove v. The Queen, 2016 TCC 283 under s. 126(1).