Principal Issues: Whether CRA will continue to ask taxpayers who have invested in a mutual fund and claimed foreign tax credits to provide information related to the breakdown for each country of the foreign non-business income and non-business income tax paid related to a T3 issued by the mutual fund.
Position: Generally, no breakdown would be necessary but an amended T3 should be filed in case of inconsistencies between the T3 and the foreign tax credit claimed.
Reasons: Administrative position.
FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE 5 OCTOBER 2018
2018 APFF CONFERENCE
Question 12
Follow-up on CRA requests respecting the foreign investment tax credit
In the autumn of 2017, the CRA sent many taxpayers a letter requesting information on the foreign tax credit claimed in 2016 in their tax returns respecting certain of their investments, including Canadian mutual funds investing in the United States, Europe, Asia, etc. Essentially, the CRA wanted information on the breakdown of foreign income by country and type of income and of foreign taxes by country.
Information provided by issuers of mutual funds (for example, in the T3 slip) does not indicate such information. In addition, if the fund has invested in 20 different countries, the information to be transmitted can be very cumbersome.
These numerous letters have placed a heavy burden on multiple taxpayers, their accountants and their advisors in order to file numerous notices of objection. Finally, it appears that the CRA has let most cases for the 2016 taxation year drop.
Question to the CRA
Can the CRA provide us with more specific information about this audit initiative and what its administrative position is now with respect to taxpayers who hold such investments for which they do not, in any way, have the relevant information?
CRA Response
The CRA noted an increasing number of returns in which the claimed federal foreign tax credit amounts were inconsistent with the amounts of foreign non-business income tax paid as reported on the information slips on file (for example, box 34 of the T3 slip).
In those latter cases, the CRA requested the taxpayer to provide information on the breakdown of foreign income by country, as well as the type of income and foreign tax paid by country, all for the purpose of verifying the correctness of the federal foreign tax credit amounts claimed under the Income Tax Act.
In response to the expressed concern where a mutual fund is invested in a significant number of countries and the burden of allocating the respective information may be burdensome to the taxpayer, the CRA will revise its administrative position and request taxpayers to provide an amended tax slip that correctly reflects the federal foreign tax credit amounts claimed. In general, the CRA will no longer systematically require a breakdown of foreign income by country, type of income and foreign taxes paid by country in such situations.
Sophie Larochelle
5 October 2018
2018-076158
Response prepared in collaboration with:
Christiane Wolfe
Manager
Audit Policy and Procedures Section
Audit and Assessments Division
Collections and Verification Branch