Subject: Unused non business foreign tax credit
Expert: taxman at centa.com
Date: Tuesday January 16, 2007
Time: 04:39 PM -0500
QUESTION:
Can you use unused non business foreign tax credit from previous
years to reduce 2006 Canadian taxes.
Canadian Citizen working in the US H1B.
Thank You
----------------------------------------
david ingram replies:
The answer is yes. Prior to 2004, the claim could be carried
forward for 7 years. after 2004, the credit can be carried back 3
years and forward 10 years.
And I want to thank you for the question.I just checked and "as I
use it" our tax software Intuit's "PROFILE" does NOT carry the
excess forward and I might have a couple where I have missed the
credit. INTUIT's US Proseries which I also use, does carry the
excess forward.
The following comes from the CRA website at:
http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return
/completing/deductions/lines409-485/431-433-e.html
Français Contact us Help Search Canada Site
Home What's new E-services Site map Forms and
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A to Z index
Return to What you can deduct
Return to Line index 409 - 485 Lines 431 and 433 - Federal
foreign tax credit
This credit is for foreign income or profits taxes you paid
on income you received from outside Canada and reported on your
Canadian return. Tax treaties with other countries may affect
whether you are eligible for this credit.
Note
You may have deducted an amount on line 256 for income that
is not taxable in Canada under a tax treaty. In that case, do not
include that income, or any tax withheld from it, in your foreign
tax credit calculation.
If you paid tax to more than one foreign country, and the
total non-business income tax you paid to all foreign countries
is more than $200, you have to do a separate calculation for each
country for which you claim a foreign tax credit. In that case,
enter the total of your allowable federal foreign tax credit on
line 42 of Schedule 1 or line 45 for residents of Quebec.
You also have to do a separate calculation for business
income taxes paid to each foreign country. In that case, use Form
T2209, Federal Foreign Tax Credits, to calculate your credit for
both non business income taxes and the business income taxes paid
to each foreign country. For tax years ending before March 23,
2004, you can carry unclaimed foreign business income taxes back
three years and forward seven years. For tax years ending after
March 22, 2004, the carry forward period is 10 years.
In most cases, the foreign tax credit you can claim for
each foreign country is whichever of the following two amounts is
lower:
a.. the foreign income tax you actually paid; or
b.. the tax due in Canada on your net income from that
country.
Note
If you paid tax on income from foreign property (other than
real property), your foreign tax credit for the income from that
property cannot be more than 15% of your net income from that
property. However, you may be able to deduct on line 232 the part
of the foreign taxes you paid over 15%.
Beginning in 2004, your contribution to a foreign public
pension plan is considered as a non-business income tax for
foreign tax credit purposes where the following two conditions
apply:
a.. you are required to make the contribution under the
legislation of the foreign country; and
b.. it is reasonable to conclude that you will not be
eligible for any financial benefit from your contribution
considering that the employment in the foreign country was
temporary and for a short period of time.
Note
U.S. FICA payments qualify for this credit.
For details on how to calculate your claim, read
Interpretation Bulletin IT-270, Foreign Tax Credit and
ITNEWS-31R2 Income Tax - Technical News.
Supporting documents - If you are filing a paper return,
include your documents, such as official receipts, that show the
foreign taxes you paid, and a note showing your calculations.
Also include Form T2209, if you use it. If you paid taxes to the
United States (U.S.), attach your W-2 information slip, U.S. 1040
return, and any other supporting documents that apply. If you are
filing electronically, keep all your documents in case we ask to
see them.
Tax Tips
Your federal foreign tax credit on non-business income may
be less than the tax you paid to a foreign country. If so, and
you were not a resident of Quebec on December 31, 2006, you may
be able to claim a provincial or territorial foreign tax credit.
Get Form T2036, Provincial or Territorial Foreign Tax Credit, to
help you calculate the credit.
If you were a resident of Quebec on December 31, 2006, see
the guide for your provincial income tax return for Quebec.
Also, on line 232, you may be able to deduct the amount of
net foreign taxes you paid for which you have not received a
federal, provincial, or territorial foreign tax credit. This does
not include certain taxes you paid, such as those on amounts you
could have deducted under a tax treaty on line 256. For details,
get Interpretation Bulletin IT506, Foreign Income Taxes as a
Deduction From Income.
Completing your tax return
a.. Do all of your calculations in Canadian dollars.
b.. Complete Form T2209 if you decide, from the
information above, it applies to you.
c.. On line 42 or line 45 for residents of Quebec of
Schedule 1, enter your federal foreign tax credit from line 10 of
your Form T2209.
Otherwise:
a.. On line 431 of Schedule 1, enter your non-business
income tax paid to a foreign country.
b.. On line 431 of Schedule 1, enter the amount shown in
the financial statements or in boxes 81 and 82 of your T5013 or
T5013A slip if you were a member of a partnership and are
entitled to claim a part of the foreign taxes the partnership
paid.
c.. On line 433 of Schedule , enter your net foreign
non-business income.
d.. On line 42 or line 45 for residents of Quebec of
Schedule 1, enter the result of your calculation.
Be sure to complete the tax and credit form for your
province or territory of residence as the provincial or
territorial credit is calculated separately.
Forms and publications
a.. General Income Tax and Benefit Guide
b.. Schedule 1, Federal Tax
c.. Form T2036, Provincial or Territorial Foreign Tax
Credit
d.. Form T2209, Federal Foreign Tax Credits
e.. IT270, Foreign Tax Credit
f.. IT506, Foreign Income Taxes as a Deduction From
Income
g.. ITNEWS-31R2, Income Tax - Technical News, No. 31R2
Related topics
a.. Line 232 - Other deductions
b.. Line 256 - Additional deductions
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Date modified:
2007-01-02
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