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H&R Block, Inc. Message Board

  • stamo stamo Jan 19, 2004 10:56 PM Flag

    Canadian Investments

    Does anyone know about "Canadian Royalty Trusts?" These are investments in trust Companies that are set up to buy Oil and Gas production Companies. Dividends are paid Monthly. Dividends are made up of interest and Royalty income. Somehow, a depletion amount makes the dividend tax free to American investors. A 15% tax is paid to Canada and the US investor gets a Foreign
    Tax Credit? How does this work? How is it
    reported?

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    • 15% tax is paid to Canada and the US investor gets a Foreign Tax Credit? How does this work?
      - stamo

      The 15% Canadian tax withholding is the treaty rate withheld at the source from investments owned by US citizens.

      Depending on a number of factors you may receive a tax credit equivalent to the full 15% withheld.

      Foreign investments are further complicated by fluctuating currencies. If the monthly dividends are paid in Canadian currency you have additional exchange costs.

    • If it is accurate that the dividends are not taxable in the US, then the tax credit cannot be taken. In order for one to be allowed to take the credit, the income that generated the foreign tax must be taxable in the US.

 
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