Author Topic: How to Report US Sourced Income?  (Read 180 times)

nielkfj

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How to Report US Sourced Income?
« on: April 16, 2020, 11:31:48 AM »
I am a dual national (Canadian/US citizen) resident in Canada. I own shares in a U.S. domiciled ETF, which is held in a Canadian brokerage account. No tax has been withheld from the ETF distributions because I am a US citizen.

I have some questions about how to report this income on my tax returns:

1) To which country should I pay tax on this income and for which country should I claim a foreign tax credit on the tax paid to the other country?

For example:
Option 1: Pay tax on the distributions through my U.S. tax return, then claim a foreign tax credit on my Canadian tax return.
Option 2: Pay the tax through my Canadian tax return and claim a foreign tax credit on my U.S. tax return?

It seems Option 1 is the correct way because it appears that with Option 2 I will not be able to claim a foreign tax credit on my U.S. tax return for U.S. sourced income. But I'm not sure about this.

2) Looking at form 1116 - Foreign Tax Credit - from the IRS, it seems like there might be a way to make Option 2 work, by classifying the income as "Certain income re-sourced by treaty" (box f). Then it appears that income from the U.S. ETF becomes "re-sourced" as Canadian sourced income, enabling me to claim a foreign tax credit on my U.S. return. But I'm not sure if this is allowed.

3) I have the same questions as above about capital gains income when I sell the ETF shares.

Any help would be appreciated.