Re: Foreign Tax Withheld - Bottom Line Effect

That brings me back to my other question. Are you allowed a credit for foreign taxes that were withheld even though you might not have owed them and possibly could have had some of them refunded had you done the paper work?

Dan Lanciani ddl@danlan.*com

Some Canadian "taxes" withheld from payments to U.S. residents, e.g. pension, RRSP, and, for just a while longer, interest, constitute "payment in lieu" of income tax, i.e. the recipient's final obligation to the Canadian government on account of the payment. My understanding is that U.S. residents are able to use these amounts as "Foreign tax paid" when filing their U.S. tax returns. (i.e. credits indirectly applied to the U.S. tax owing for that income). There is some provision for such tax payers to file certain documents with the Canada Revenue Agency which would result in the source payers reducing the amounts withheld. However, in my experience, it's often better for the U.S. resident involved to claim the Foreign "Tax" paid as a credit then to go through the extensive rigmarole that a Canadian Sec. 217 return entail. YMMV, though. These comments only reflect my personal observations.