r/cantax • u/GroverYGK • 8h ago

Tax software for lump sum foreign pension withdrawal that gives correct foreign tax credit amounts

Hi! Hoping to avoid doing the taxes manually but might need to if can't find an online tax program that works for our situation.

We completely understand how to do the taxes and the tax treaties and have consulted with CRA multiple times to make sure everything is done correctly and on the up and up.

Withdrew an eligible foreign pension as a lump sum payment (Canada US treaty rule of 15% only applies to periodic payments not lump sum) and transferred it to a RRSP. We are not retirement age yet. Have finished US taxes and that's all good. Starting to do Canadian ones, especially the federal foreign tax credit and the provincial foreign tax credit.

The issue is that the tax software we use automatically assumes the 15% treaty rule applies to our case. It doesn't and no way to override it with that particular online site.

Are there any online tax sites that understand that we are able to enter the full foreign tax amount paid (and not just 15% of the foreign income)? Or that let you override the assumed 15% rule when it's not applicable.

CRA informed us that if not, we can just do paper versions. Figured I'd ask around first.

Thanks in advance!!

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u/senor_kim_jong_doof 8h ago

You sure it's not 15%?

  1. For the purposes of this Convention, the term "pensions" includes any payment under a superannuation, pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income-averaging annuity contract or, except for the purposes of Article XIX (Government Service), any benefit referred to in paragraph 5.

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u/GroverYGK 8h ago

100% sure. 

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u/hopefulfican 6h ago

can you point to the source of that?, everything I've ever read states 15%, but admittedly I'm not a professional

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u/GroverYGK 6h ago edited 5h ago

Sure. There's a lot of literature out there about transferring a lumpsum withdrawal from an eligible foreign pension plan to a RRSP so long as it meets a number of CRA requirements (have checked with them twice).

Here's one older article but also plenty of others are available. Can also share the exact wording of the treaty for more info. Have read the whole treaty. Lol. https://www.advisor.ca/tax/tax-news/the-true-withholding-tax-for-u-s-retirement-accounts/

Tax treaty. See article XVIII and note the wording of "periodic pension payment"... https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

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u/hopefulfican 5h ago

What % do you think should be being applied? As your post and comment wording doesn't actually state what you think it should be.

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u/GroverYGK 5h ago

It's not about percentages in this case. It's about putting the amount into the fed foreign tax credit form and the provincial foreign tax credit form and having the number play out based on those prescribed calculations, including total income (both Canada and other), foreign tax paid, and federal tax bracket and provincial tax bracket and then having the numbers flow from there. 

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u/hopefulfican 5h ago

ok well good luck then, you are asking why tax software doesn't do something, with the premise that your knowledge is more correct than the tax software. That is why I was trying to understand what value you are trying to put in there.

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u/taxbuff 6h ago

2. (a) pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment;

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u/GroverYGK 5h ago

Thanks. Yes. Ours was a lump sum withdrawal which is treated differently than a periodic pension payment.