More Documentation Required for FTC Claims
At the June 10, 2016 STEP Canada CRA round table, the CRA clarified its stricter documentation requirements for foreign tax credit (FTC) claims, particularly in respect of providing proof of US taxes paid.
The CRA generally looks for a notice of assessment or equivalent document from the foreign tax authority; the foreign income tax return and attachments; and any other supporting documents that may be applicable (see form T2209, “Federal Foreign Tax Credits”). Although this requirement may seem straightforward, taxpayers should be aware that foreign countries’ tax administration procedures may be different from Canada’s. In particular, the foreign country’s tax year may not coincide with Canada’s tax year. Also, the foreign country may not provide any documentation when the foreign tax return is assessed. In such cases, a special request must be made to the foreign tax authority, and the taxpayer may not receive proper documentation for several months.
The CRA’s response to question 9 at the STEP round table provides helpful background on this issue, particularly in respect of documentation required to prove the amount of US taxes paid (federal or state). (See CRA document no. 2016-0634941C6, June 10, 2016.) The CRA noted “an observed increase in the trend of incorrect reporting and incomplete submission of documents relating to [US-source income]”; it said that the increase was attributable to the lower level of documentation required for US-source income than for foreign-source income from other countries. Accordingly, the CRA decided in 2015 to make the level of documentation for US-source income consistent with that required for income from other jurisdictions.
It appears that this decision has resulted in some pushback owing to the difficulty of obtaining US documentation. As a result, the CRA has said (CRA document no. 2016-0634941C6, June 10, 2016) that if a notice of assessment or a similar document cannot be obtained, proof of payments made to (and/or tax refunds received from) foreign jurisdictions will now be accepted instead.
This may be in the form of bank statements, cancelled cheques (front and back), or official receipts. The following information has to be clearly indicated:• that the payment was made to or received from the applicable foreign tax authority;• the amount of the payment or refund;• the tax year to which the payment or refund applies;• the date that the amount was paid or received.Taxpayers can request extensions of time to respond to the requests from the CRA. Certain steps can also be taken to request the account transcript in advance of the CRA’s request, which could significantly reduce or eliminate issues arising from these reviews. Furthermore, a majority of US states have online account systems that allow taxpayers to print out their account statements as supporting documentation for the claim.
Ultimately, it is recommended that taxpayers and their representatives do not wait until the CRA asks for supporting documents for these claims, since it is clear that the CRA will be requesting them. Obtaining the documents after the request is received could lead to delays in processing.
At the June 10, 2016 STEP Canada CRA round table, the CRA clarified its stricter documentation requirements for foreign tax credit (FTC) claims, particularly in respect of providing proof of US taxes paid.
The CRA generally looks for a notice of assessment or equivalent document from the foreign tax authority; the foreign income tax return and attachments; and any other supporting documents that may be applicable (see form T2209, “Federal Foreign Tax Credits”). Although this requirement may seem straightforward, taxpayers should be aware that foreign countries’ tax administration procedures may be different from Canada’s. In particular, the foreign country’s tax year may not coincide with Canada’s tax year. Also, the foreign country may not provide any documentation when the foreign tax return is assessed. In such cases, a special request must be made to the foreign tax authority, and the taxpayer may not receive proper documentation for several months.
The CRA’s response to question 9 at the STEP round table provides helpful background on this issue, particularly in respect of documentation required to prove the amount of US taxes paid (federal or state). (See CRA document no. 2016-0634941C6, June 10, 2016.) The CRA noted “an observed increase in the trend of incorrect reporting and incomplete submission of documents relating to [US-source income]”; it said that the increase was attributable to the lower level of documentation required for US-source income than for foreign-source income from other countries. Accordingly, the CRA decided in 2015 to make the level of documentation for US-source income consistent with that required for income from other jurisdictions.
It appears that this decision has resulted in some pushback owing to the difficulty of obtaining US documentation. As a result, the CRA has said (CRA document no. 2016-0634941C6, June 10, 2016) that if a notice of assessment or a similar document cannot be obtained, proof of payments made to (and/or tax refunds received from) foreign jurisdictions will now be accepted instead.
This may be in the form of bank statements, cancelled cheques (front and back), or official receipts. The following information has to be clearly indicated:• that the payment was made to or received from the applicable foreign tax authority;• the amount of the payment or refund;• the tax year to which the payment or refund applies;• the date that the amount was paid or received.Taxpayers can request extensions of time to respond to the requests from the CRA. Certain steps can also be taken to request the account transcript in advance of the CRA’s request, which could significantly reduce or eliminate issues arising from these reviews. Furthermore, a majority of US states have online account systems that allow taxpayers to print out their account statements as supporting documentation for the claim.
Ultimately, it is recommended that taxpayers and their representatives do not wait until the CRA asks for supporting documents for these claims, since it is clear that the CRA will be requesting them. Obtaining the documents after the request is received could lead to delays in processing.
