Purchased (and sold) US securities/ETF in 2021 but got no fed/prov credit. Is this normal? | Income tax filing | Discussion forum

Selling a capital asset results in a capital gain or loss in a taxable account. There are no tax credits associated with a Schedule 3 capital transaction.

What your image is saying is that you received 'income' from your US securities during 2021 and you did pay withholding tax (15% or 30%) on that income to Uncle Sam. The Foreign Tax Credit (FTC ) is a mechanism to be sure you do not pay taxes twice on the income, e.g. once to the USA and once to Canada. Since you said elsewhere that you will be paying no income tax with your tax filing to Canada, you have no Canadian tax to recover with the FTC.

A tax credit is not a tax refund. A tax credit only is possible to the extent that you owe and would otherwise be paying income taxes to Canada.

piggybank said
But what I'm trying to understand is... what's the connection between a person who doesn't owe income tax (like me) and the FTC?
Or to put in another way, don't people who owe taxes (say from employment income) also entitled to foreign tax credit?

There is no connection between a person who does not owe Canadian income taxes and the FTC. There is no FTC in that case against zero income tax owing.

Taxpayers who would otherwise owe taxes from various sources of income, including employment, would receive the value of the FTC as a credit against taxes otherwise owing.

Example 1: Taxpayer #1 happens to owe $350 in income taxes to Ottawa from world sources of income, but has already paid $25 in non-business income tax withheld to the IRS. That $25 is credited as an FTC on Canadian taxes and that taxpayer only pays Ottawa $325 in income taxes.

Example 2: Taxpayer #2 happens to owe $20 in income taxes to Ottawa from world sources of income, but has already paid $25 in non-business income tax withheld to the IRS. Only $20 of the $25 can be credited as an FTC on Canadian taxes and nothing is owing to Ottawa in income taxes.

Example 3: You.... Since you don't owe any income taxes to Ottawa, you don't get to recover any of the $25 you paid to the IRS and there is $0 of FTC.

Norman1 said
It doesn't matter that one doesn't owe any Canadian income taxes on the income from the US. One still owes US non-resident income taxes of 15% on that income.

The federal and provincal foreign tax credits ensure that one pays the higher of

1. Canadian income taxes and
2. US income taxes

on the US income instead of A + B.

Consequently, one won't be receiving any refund when the Canadian income taxes on the US income are less than the US taxes paid.  

That’s good to know. In my case my T5 has multiple stocks that I rec US dividends from, and there is always a foreign tax credit. So that means I am already paying a higher withholding tax than the Canadian tax ??, Given my marginal Canadian tax bracket, that does not sound right tho…
And it’s way too much work to try to hunt down how much withholding tax I pay in each name… I just hope I am not overpaying at the end of the day.

savemoresaveoften said
That’s good to know. In my case my T5 has multiple stocks that I rec US dividends from, and there is always a foreign tax credit. So that means I am already paying a higher withholding tax than the Canadian tax ??, Given my marginal Canadian tax bracket, that does not sound right tho…

There's no foreign tax credit on T3 or T5 slips. It is foreign taxes paid that's reported on the slips.

The Canadian foreign tax credits are calculated from that on forms T2209 and T2036.

Part of the calculations in the forms is the federal and provincial income taxes due on the foreign income. As AltaRed indicated, one will not receive full credit for the foreign taxes paid when the federal and provincial income taxes are less.

Norman1 said

savemoresaveoften said
That’s good to know. In my case my T5 has multiple stocks that I rec US dividends from, and there is always a foreign tax credit. So that means I am already paying a higher withholding tax than the Canadian tax ??, Given my marginal Canadian tax bracket, that does not sound right tho…

There's no foreign tax credit on T3 or T5 slips. It is foreign taxes paid that's reported on the slips.

The Canadian foreign tax credits are calculated from that on forms T2209 and T2036.

Part of the calculations in the forms is the federal and provincial income taxes due on the foreign income. As AltaRed indicated, one will not receive full credit for the foreign taxes paid when the federal and provincial income taxes are less.  

ic. looks like I recd a Fed credit but nothing for provincial.

Bill said
It's not clear what "tax owing" means here. It could mean either there are no taxes owing at all for the year or there are no further taxes owing at time of filing. If the latter then there might be a credit for this, seems to me.

The original scenario about buying US securities and paying taxes on them started out unclear to me as you don't pay taxes when you buy US securities, far as I know.  

Agree it is a matter of definition. "Tax owing" should (would) mean any tax payable on taxable income, e.g. Line 42900. It is from that number that Line 40500 is subtracted from to get Line 40600. That latter line cannot be less than zero..... so hence why the FTC is a tax credit and any foreign taxes paid cannot be used to reduce one's federal tax owing to less than zero.

The original post actually has nothing to do about selling anything. It is about foreign taxes withheld on investment income received which is reported on either a T3 or T5.

piggybank said
You're probably right. I don't recall if I even sold these US-based securities  

You would know. You would have the confirmation slip records from your broker that you did with the pertinent sale details and your brokerage would/should have sent you a T5008 to put the data on Schedule 3 of your 2021 tax return. You HAVE to report any cap gain/loss dispositions in the year they are transacted.