CRA Foreign Tax Credit Review: Proof and Denied Claims

Why is the CRA asking for proof of a credit already claimed?

The CRA can review a foreign tax credit after a return is filed because the return alone may not show whether the foreign tax was eligible, actually paid and final. The CRA first checks information it already has and asks for more if needed (CRA: responding to a review).

The credit generally concerns foreign income or profits tax on income from outside Canada that you reported in Canada. If both countries treat you as resident, resolve treaty residence first: a person resident in the other country under a treaty is deemed non-resident in Canada for the same period under Income Tax Act section 250(5). Income exempt from Canadian tax under a treaty, and its foreign withholding, do not enter the credit calculation (CRA: foreign tax credit). The amount can depend on the income's source, the kind of tax and the applicable treaty. A claim on an electronically filed return does not mean supporting documents were already reviewed; the CRA says to keep them for a later request (CRA: foreign tax credit). For the calculation itself, see Foreign income on a Canadian return.

What should I send before the review letter's deadline?

Send the records the CRA letter requests, using its reference number and response date. If a record is unavailable, explain what is missing and why; call the number on the letter if you need more time (CRA: responding to a review). For foreign tax credit reviews in the pre-assessment or processing review programs, the CRA may grant more time under a pilot, but will not grant a second extension; ask promptly and send what you have by the agreed date (CRA: common adjustments).

The CRA says scanned documents can be submitted online. Follow the letter's instructions for your review program. Keep a copy of the response and proof of submission. For foreign tax settled entirely through withholding, a foreign tax slip is usually satisfactory; in most other cases, the CRA generally wants the filed foreign return plus receipts or other payment proof (CRA foreign tax credit folio, paragraph 1.45). If you cannot get the foreign authority's final record, the CRA accepts a bank statement, both sides of a cancelled cheque, or an official receipt showing a payment or refund, the authority, amount, tax year and date. This replaces only the authority record; send the other requested documents (CRA: common adjustments).

For US tax, does the CRA need my W-2, filed return and IRS transcript?

For a paper-filed US tax claim, the CRA specifically lists the W-2, US Form 1040, US tax account transcript and other applicable documents. For a review, send what the letter requests. If you filed Form 1040-NR as a US nonresident, send that return and explain why Form 1040 does not apply (CRA: foreign tax credit supporting documents; IRS: nonresident returns).

Get the tax account transcript for the year under review from your IRS Individual Online Account, by mail, or with Form 4506-T. The IRS says a tax return transcript omits later changes; an account transcript shows payments and changes after filing. A return transcript alone does not prove final liability. If the account transcript is unavailable by the CRA deadline, send the substitute payment or refund proof described above with your other records (CRA: common adjustments).

What proof works for tax paid in China or another country?

The CRA asks for proof that the foreign income tax was paid, not one universal foreign form. For income taxed in China or elsewhere, start with the official foreign income or withholding record, filed return, assessment or tax account statement, and receipt showing any additional tax paid. A slip alone is usually enough only when withholding settles the liability; otherwise the CRA generally expects the return and payment evidence (CRA foreign tax credit folio, paragraph 1.45).

If a record is neither English nor French, send the original and an English or French translation. The CRA accepts a translation by a member in good standing of a Canadian provincial or territorial translators' organization, or one certified by a commissioner of oaths, notary or lawyer. The signatory's name must appear in the Latin alphabet and cannot be the taxpayer's name. The CRA lists other accepted routes.

Why can tax withheld from pay differ from the tax finally owed?

Withholding is an advance payment or a way to settle a tax liability; a payslip alone may not establish the final tax for the year. A foreign return, assessment or refund can change the amount eligible for the Canadian credit (CRA foreign tax credit folio, paragraphs 1.32–1.35 and 1.45).

The CRA excludes foreign tax that will be or has been refunded. It also says withholding above the applicable treaty rate does not count toward the credit; seek the excess from the foreign tax authority. Reconcile the foreign slip, filed return, final assessment, payments and refunds before replying. If the foreign return is still pending, tell the CRA what is provisional and supply the final record when available (CRA foreign tax credit folio, paragraphs 1.33, 1.35 and 1.45).

Does US state income tax, Social Security tax or Medicare tax count?

US state income tax can qualify if it is an income or profits tax on the relevant foreign income. A charge called a tax does not qualify solely because of its name: the CRA says some state minimum franchise or unitary taxes do not qualify, and the result may require reviewing the state law (CRA foreign tax credit folio, paragraphs 1.5–1.11).

The CRA's Form T2209 instructions expressly include US FICA Social Security and Medicare taxes among qualifying contributions. Check whether those or US self-employment taxes were owed under the Canada–US social security agreement; if withheld in error, seek a US refund. For tax properly paid, Article XXIV of the Canada–US tax convention provides relief for an individual's US social security taxes on US-source income, subject to Canadian credit limits, but excludes unemployment insurance taxes. Keep payroll contributions separate from income tax when documenting the claim. For coverage and refunds, see Working across the border.

The CRA removed my credit and reassessed me. Can I send more proof?

Yes. If the CRA changed a claim after review, it says it will accept new documents and review the claim again for a possible adjustment. Send the missing proof as the review letter instructs, with a short reconciliation of the claimed tax, final liability, payments and refunds (CRA: submitting information after a review).

If you dispute a reassessment, a notice of objection is the formal route. File through CRA My Account's “Register my formal dispute,” then use the case number to submit proof. Or mail or fax Form T400A or a signed letter stating your facts and reasons to the Appeals Intake Centre. File by the objection deadline even if the review office is considering new proof. If the CRA reassesses again after you object, the new notice cancels the original objection; check whether you must object to the new notice (CRA: resolving your dispute). You, including if self-employed, remain responsible for your own tax shortfall under Income Tax Act section 152(3). Interest generally runs on an unpaid balance under Income Tax Act section 161(1), although a formal objection generally postpones collection of disputed personal income tax; interest can continue (CRA: taxpayer rights). A dispute about which tax qualifies, income source or treaty relief may need cross-border tax help.

My foreign return changed or produced a refund. How do I correct the Canadian credit?

Tell the CRA if a foreign assessment or reassessment changes the tax paid, and provide proof of any additional payment. If foreign tax was refunded or became refundable, remove that amount from the eligible tax in the affected Canadian year (CRA foreign tax credit folio, paragraphs 1.33 and 1.45).

Compare the new foreign record with the Canadian credit calculation, then request a change to the Canadian return for the affected year. The CRA's change process allows an online request or a mailed Form T1-ADJ with supporting documents. Keep the revised foreign return or assessment, refund or payment proof, and exchange-rate calculation. A foreign refund may also create a separate exchange gain or loss; the CRA describes this in its foreign tax credit folio, paragraph 1.44. If a later foreign tax adjustment increases your Canadian tax, Income Tax Act section 161(6.1) stops interest on that increase through 90 days after you are first notified of the foreign adjustment; it does not erase the tax. The CRA can reassess a foreign tax payment or refund for 3 years after the normal three years individual reassessment period ends (Income Tax Act sections 152(3.1) and 152(4)(b)(iv)).

For a foreign business carried on abroad, an unused business-income credit can be carried back 3 tax years or forward 10 tax years, by country; an unused non-business credit cannot. An individual claiming a carryback files Form T1-ADJ for the earlier year by the filing due date for the year the unused credit arose (Income Tax Act sections 126(2) and 152(6)(f.1)).

If a non-business credit is limited, check the separate income deduction under section 20(12); the same tax cannot be both deducted and credited. For an individual’s foreign property income other than real property, tax above 15% of the gross income is excluded from the credit even if the section 20(11) deduction is not claimed (CRA foreign tax credit folio, paragraphs 1.22–1.24).

How long do I have to request a change or object?

A change request and an objection have different limits. For an ordinary individual income tax assessment, object by the later of 1 year after that return's filing deadline or 90 days after the assessment notice date (CRA: objection deadlines). Special reassessments can restrict what you may object to, so read the notice before relying on the ordinary rule.

The refund limit is not an extension of the objection deadline. A change request may fix a documented error, but an unresolved dispute about a reassessment calls for a timely objection (CRA: resolving your dispute).

Example

The eligible foreign tax starts with the final liability, not necessarily the amount withheld. Illustrative amounts in US dollars; no Canadian credit is calculated. A Canadian resident's W-2 box 2 shows US$12,000 of federal income tax withheld. With no other US tax payments or refundable credits, the filed return and IRS account transcript show US$8,000 final federal income tax and a US$4,000 refund. The resident claimed a Canadian credit using US$12,000.

The resident sends the W-2, filed return, account transcript and refund record to the CRA. The starting amount to test for an eligible US tax credit is US$8,000, not US$12,000; the final Canadian credit may be lower because the income's source and Canadian tax limit still matter. If the CRA has reassessed the claim, the resident also checks the separate objection deadline while requesting a correction.

Different for you?

The next step changes if the issue is the income's source, a Quebec credit or a dispute beyond this claim.

• You need to calculate federal or provincial credits: see Foreign income on a Canadian return.
• You worked physically in Canada for a foreign employer or client: the foreign tax may need to be recovered abroad; see Remote work for employers and clients abroad.
• You live in Canada and work for a US employer: coordinate both returns through Working across the border.
• The review has widened into an audit or involves unreported years: see Reviews, audits and voluntary disclosure.
• You live in Quebec: use the CRA process for the federal credit, but check Quebec line 409, Schedule E and a separate Form TP-772-V for each country instead of federal Form T2036. Correct a Quebec return through Form TP-1.R-V or My Account. If Revenu Québec reassesses you, object separately through My Account, Form MR-93.1.1-V or a letter by the later of 90 days after its notice or one year after the return filing deadline when that extension applies (Revenu Québec: objection time limit); see Foreign income on a Canadian return.
• Your foreign tax, treaty position or reassessment spans countries or years: gather both countries' returns, tax account records and CRA notices for cross-border tax help.