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1040 question for a US citizen, pls?A US citizen is also

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1040 question for a US citizen, pls?

A US citizen is also a Canadian citizen. He works and lives in Canada. He bought some US stocks from a Canadian bank. Therefore he received T5 (canadian tax slip) on which captial gain and dividend income from US stocks are reported. But no foreign tax withholding on these income per T5. He also receives a 1099 on which only dividend income is reported. On his Canadian tax return, he reported capital gain and dividend income and paid full tax to Canada without deducting any foreign tax withholding. Since he is a US citizen, he needs to file 1040 as well. My question is could he claim Canadian tax paid on CG and dividend income on these US investment income?



Yes, most certainly, the tax paid to Canada on the capital gain and the dividend income would be eligible to for the foreign tax credit on the 1040.


The source of the income is the U.S. but it is somewhat irrelevant for the foreign tax credit in this circumstance. The fact is that the U.S. citizen is being subject to tax on the US sourced dividend and capital gain in Canada. The tax paid on this income to Canada would be eligible for the foreign tax credit.


Note that if the tax credit is less than $150 Form 1116 does not need to be filed.


Best regards,

Customer: replied 4 years ago.


Could you pls refer me to the source of this conclusion, eg, treaty or IRC code?


Thanks again!

Hello Lucia,


Certainly. Here are some references:


Foreign tax credit tests -


Instructions to Form 1116, see page 2 "Foreign Taxes Eligible for a Credit" (note that the amount is $300 not $150 to claim the credit without filing Form 1116) -


See IRC 901 here -


Best regards,


Customer: replied 4 years ago.



What I don't understand is why in this case, the US income could be treated as Canadian income and FTC could be applied on these "US income"?



US Source income is not treated as Canadian source income. What is driving the credit is that it is being taxed in Canada as well. The purpose of the foreign tax credit is to eliminate double taxation from country to country.


I was having difficulty with this issue once before and you will note that the in order to qualify for the credit the "taxes" must be imposed by a foreign country. The source of the income is not used to when determining if the tax is creditable. Thus the source is somewhat irrelevant. The driving factor is that the tax is imposed by a foreign country and is also subject to taxation in the U.S.


See Publication 514 here as well -



I hope this helps, please let me know if you have any further questions.


Best regards,

Customer: replied 4 years ago.

Thanks. I read the link you provide. Do you think the following paragraph from the same link could explain this situation?


"Certain Income Re-Sourced By Treaty

If a sourcing rule in an applicable income tax treaty treats U.S. source income as foreign source, and you elect to apply the treaty, the income will be treated as foreign source.

You must compute a separate foreign tax credit limitation for any such income for which you claim benefits under a treaty, using a separate Form 1116 for each amount of re-sourced income from a treaty country. See sections 865(h), 904(d)(6), and 904(h)(10) and the regulations under those sections (including Regulation section 1.904-5(m)(7)) for any grouping rules and exceptions."





Hello Lucia,


No I don't think this applies in this fact pattern, you aren't resourcing income due to treaty really. 864 deals with sourcing and 904 is dealing with the limitation on the credit.


I believe you have the authority you need simply by the tests required. There is no sourcing test. Just that the tax is imposed by a foreign country.



Customer: replied 4 years ago.

How about the following paragraph from the same link? I think what you meant is reasonable. The reason I want to verify it is because I want to know whether a separate form 1116 and 8832 is necessary in this case. If form 8832 is failed to be provided, any trouble on it?


Thanks again.


"The United States is a party to tax treaties that are designed, in part, to prevent double taxation of the same income by the United States and the treaty country. Many treaties do this by allowing you to treat U.S. source income as foreign source income. Certain treaties have special rules you must consider when figuring your foreign tax credit if you are a U.S. citizen residing in the treaty country. These rules generally limit the amount of U.S. source income that is treated as foreign source income. The treaties that provide for this type of restriction include those with Australia, Austria, Bangladesh, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malta, Mexico, the Netherlands, New Zealand, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, and the United Kingdom. There is a Worksheet at the end of this publication to help you figure the additional credit that is allowed by reason of these limited re-sourcing rules. But do not use this worksheet to figure the additional credit under the treaties with Australia and New Zealand. In addition, except as provided in regulations, the worksheet does not apply for tax years beginning after August 10, 2010. The amount of income re-sourced in the separate category, as described under Certain Income Re-Sourced By Treaty,earlier, must be computed in accordance with the applicable treaty provision."

I don't see how form 8832 would apply...but perhaps I do not know all the facts.

I do not believe the sourcing rules apply here which is what the treaty is discussing. Basically the treaty eliminates or reduces the ability to create foreign sourced income to maximize the ability to claim the foreign tax credit.

In your fact pattern the income is in fact us sourced but taxed in Canada because of residency of the tax payer. The dividends are us sourced under irc 864 and the gain is sourced to the residence of the taxpayer.

How much of a potential foreign tax credit are we talking about?

Best regards,
Customer: replied 4 years ago.


Hello Lucia,


OK well that is good to know. As mentioned above the sourcing of the tax credit is somewhat irrelevant here. Here is an additional link supporting my conclusion.




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Customer: replied 4 years ago.
Thanks very much for your efforts on this,topic.