QUESTION:
I purchased shares in some Canadian Income trusts thru my tax-qualified IRA
(individual retirement acct). Approx 15% of the dividend payment appears to
have been with-held. I have read that the Canadian government is doing this
to make sure income taxes are paid on these dividends, etc but I have also
read that there is a taxform or a method for a U.S. investor in Canadian
trusts to receive credit for this tax on our own tax returns so we aren't
penalized by holding this investment in what would normally be a taxdeferred
vehicle (IRA). Please explain the procedure and Forms for this process.
Thank you.
-----------------------------
david ingram replies:
I know of no way to claim the 15% tax back inside an IRA and for the life of
me, can not understand "why" anyone would buy a Canadian Income Trust in a
US IRA. The whole reason for buying a Canadian Income Trust is to get tax
free capital returns.
When you put the trust into an IRA, you are making tax free money taxable.
Buy the trust OUT of the IRA as soon as possible. If you have to, borrow
the money to buy the trust out. The interest on the loan will be deductible
on Schedule A of your US return and the dividends will be taxable on
schedule B but you can claim the 15% tax deducted as a dollar for dollar
credit on your 1040 by filing US form 1116 with your 1040.
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