An individual (the "Settlor") creates an alter ego trust and transferred inter alia U.S. stocks to the trust. S. 75(2) applies to deem the dividend income thereon to be income of the Settlor, who created the trust and who is, under the trust, a lifetime beneficiary. Is it correct that the U.S. withholding tax on the dividends would not be attributed to the Settlor, and remains in the trust?
CRA indicated that s. 75(2) does not attribute a foreign non-business income tax payment back to the settlor. Since the amount must have been paid by the taxpayer who is making the claim in order to claim a foreign tax credit under s. 126(1), the settlor would not be eligible to claim a foreign tax credit respecting to the U.S. tax paid in the alter ego trust and, for the same reason, the settlor would not be able to claim ss. 20(11) or (12) deduction.
However, the trust itself may be able to claim a s. 20(11) or (12) deduction in calculating the income that is attributed to the settlor.