Recently, CRA has been requesting taxpayers to obtain a transcript from the IRS where foreign tax credits were claimed for U.S. tax paid. Why this change in practice?
CRA indicated (partly in its oral response) that in 2015, in the context of reviewing foreign tax credit claims, it decided to extend, to U.S.-source income, its practice for other countries of requiring a copy of the foreign tax return as well as a copy of the foreign notice of assessment (or other equivalent document) from the foreign tax authority.
However, if the taxpayer is not able to provide a copy of the notice of assessment, the transcript or equivalent document from the foreign tax authority, CRA (in light of feedback) will now accept proof of payment to (or refund from) the authority. That proof can come in the form of bank statements, cancelled cheques, or official receipts so long as certain information is clearly indicated, including that the payment was made to, or refund received from, the authority, and the amount and date (and related tax year) of the payment (or refund).
In its official response, CRA added:
[T]here is a certain level of expectation that a more pro-active approach will be adopted to ensure that the required documents are requested or obtained in anticipation of a possible review by the CRA. ...
According to the IRS website “Most requests will be processed within 10 business days”. ...
[T]he IRS has a very structured process for requesting tax account transcripts online or through the mail using Form 4506-T. ... In addition, the majority of the U.S. states have an online system which allows the taxpayer to print his/her “account statement” which would confirm the taxpayer’s final tax liability.