CRA explains the 8% adjustment to the FTC deduction under the NERDTOH computation for foreign investment income

Although the general tendency of the NERDTOH definition is to add to the NERDTOH of a CCPC an amount equal to 30 2/3% of its aggregate investment income, in the case of foreign investment income (FII), the refundable tax addition is reduced by the excess of the amount of the foreign tax credit deduction under s. 126(1) for the year minus 8% of the year’s FII.

CRA explained that this 8% rate represents the difference between a deemed tax rate of 38 2/3% on the CCPC's FII (i.e., the sum of the 28% federal corporate tax rate applicable to the CCPC's AII and the 10 2/3% rate applicable to such income under s. 123.3) and the refundable amount thereof of 30 2/3%.

Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.8 under s.129(4) – NERDTOH – (a)(i).