Canada has tax treaties with a number of countries around the World. These treaties are meant to stop double-taxation, where appropriate.
If you are a Canadian tax resident, and you have paid taxes in another country (that we have a tax treaty with), you are normally entitled to foreign tax credits based on the amount of taxes you paid in that other country.
How do I Claim Foreign Tax Credits?
When preparing and filing your tax returns, taxpayers need to complete Form T2209 which calculates the federal credits you are entitled to. For provincial credits, taxpayers must complete Schedule 21.
Why Does CRA Ask for Proof of My Foreign Tax Credits?
Nearly every taxpayer who files a tax return claiming foreign tax credits are asked to prove their credits by the CRA. Taxpayers will be required to submit the documentation proving they have paid taxes to another country that we have a tax treaty with.
If you do not respond, or do not provide the documentation CRA is looking for, your credits will be denied.
What if CRA Denies My Foreign Tax Credits?
There are many cases where the CRA has denied foreign tax credits even though taxpayers have provided proof of the taxes being paid. This is because some CRA agents don’t understand that every country has a unique tax system, and the proof of taxes being paid does not always look like our notice of assessment.
Thankfully, taxpayers are entitled to file notices of objection which dispute the denial of the foreign tax credits, and the matter can be sent to an appeals officer for further review.
Conclusion
If you are being reviewed for your foreign tax credits, or your credits have been denied, we can help. Give us a call for a free consultation to learn how we can assist in ensuring that you are entitled to the credits that you deserve.
Jeff Kirshen, BA, JD(US), JD(CDN)
Partner & Tax Lawyer
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.