Principal Issues: Where a cross-border employee's employment duties for the year are carried out partially in the U.S. and partially in Canada, (1) are the FICA contributions made in respect of duties exercised in Canada eligible for a foreign tax credit, and (2) how would this affect the deductibility of any 401(k) contributions made in that year ?
Position: (1) only FICA contributions made on employment income relating to the duties performed while the individual was physically present in the U.S. would qualify for foreign tax credit; (2) only 401(k) contributions attributable to the services performed while the individual was physically present in the U.S. would be deductible in computing taxable income in Canada.
Reasons: (1) the words of Article XXIV:2 of the Canada-US Treaty; (2) the words of Article XVIII:10 of the Canada-US Treaty.