Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can part-year residents claim the foreign tax paid for the entire year as a foreign tax paid for purposes of the foreign tax credit?
Position: While the foreign non-business-income tax or business-income tax paid in respect of the full year is the starting point, the amount of foreign tax credit available to part-year residents is determined by the operation of the formulas in section 126. This is reflected on Form T2209 and explained in greater detail in Income Tax Folio S5-F2-C1, Foreign Tax Credit.
Reasons: Text of section 126.
2013 STEP CANADA ROUNDTABLE, June 10 & 11, 2013
QUESTION 5. Foreign Tax Credit/Part Year Resident
It appears that the foreign tax credit which can be claimed in respect of a part-year resident is not limited to the portion of the foreign tax paid while the person is resident in Canada. In fact, it appears that the foreign tax for the entire year may be claimed as a foreign tax paid, although the foreign tax credit is subject to other limitations, such as the ratio of the net foreign income to net income, with adjustments.
Does CRA agree that the foreign tax paid for the entire year may be claimed as a foreign tax paid for purposes of the foreign tax credit?
CRA Response
The starting point in determining the amount of a foreign tax credit available to a part-year resident of Canada in respect of a particular foreign jurisdiction is the total "non-business-income tax" or "business-income tax" paid for the year to that foreign jurisdiction, as those terms are defined in subsection 126(7). However, the actual amount of a foreign tax credit available to a part year resident is determined by the formulas contained in subsections 126(1) and (2.1) of the Act. Whether the amount of foreign tax credit available to a part-year resident is limited will depend on the facts of any particular situation.
The operation of the foreign tax credit formulas, including their application in the case of a part year resident, is reflected in the workings of Form T2209.
In addition, guidance on the operation of the foreign tax credit formulas for both business-income tax and non-business-income tax paid to a country other Canada, and how the foreign tax credit may be altered in the case of non-resident individuals, is found in the recently released Income Tax Folio S5 F2 C1, Foreign Tax Credit, which is available through the CRA website. S5 F2 C1 replaces the prior Interpretation Bulletins IT270R3, Foreign Tax Credit, IT395R2, Foreign Tax Credit Foreign-Source Capital Gains and Losses, and IT520 (consolidated), Unused Foreign Tax Credits Carryforward and Carryback.
2013-048031
Eli Kae Moore
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