For IRA/401K for US citizens, is there a way around not having the Canadian tax withheld, because one can not take a tax credit on foreign withheld taxes given a IRA/401K structure? Thanks in advance for your input.
My experience with other Canadian stocks I own (such as TRP and BMO), is that a 15% Canadain tax is withheld from the dividend payments regardless of whether the stock is held in a tax-deferred account (such as a 401(k) or IRA) or a taxable account. The same has been true in my experience with stocks of companies based in other countries that tax dividends at the source (such as BHP, which is an Australian company).
Once I read somewhere that there was some treaty between Canada and the US under which Canada was not supposed to tax dividends held in a tax-deferred account, but I could not find any verification of that and Schwab (where I have my 401(k)) disclaimed any knowledge of such a treaty.
Also, I could be mistaken, but I do not believe you can claim a credit for the payment of a foreign tax withheld from dividend payments made to a tax-deferred account because (i) the Form 1116 allows you to take a credit only against dividends that are subject to both the foreign tax and the US tax and (ii) dividends paid into a tax-deferred account are not subject to US tax.
It is for these reasons that I now hold foreign stocks whose dividends are subject to foreign tax withholdings only in taxable accounts, so that I can claim the credit.
the form is #1116 which you file with the 1040 but don't assume you will recover it all. Also, Fidelity told me Canada will withold 15% from royalty trusts but not regular corps held in an IRA.
This is what I received from BCE Investor Relations....
Yes, dividend on BCE common shares are subject to withholding taxes. However, I believe there is a way for you to hold those shares in an IRA account. Have you talked to your tax advisor or financial institution already on this aspect?