CRA considers that U.S. taxes paid by a Canadian resident individual on business income of LLCs held through a ULC are deductible under s. 20(12) as being in respect of his ULC shares as a source of property income

CRA considered that U.S. taxes paid by a U.S. citizen resident in Canada on income which for U.S. purposes was considered to be earned by him as a “partner” of a Canadian ULC which carried on a U.S. business through LLCs was deductible by him in computing his Canadian income under s. 20(12). CRA reasoned that such U.S. taxes were “in respect of” potential income on his shares of the ULC (being his only source of income from a Canadian perspective, albeit one that was not currently generating income):

There is a logical connection between the income from ULC and the U.S. taxes paid by Taxpayer because if Taxpayer did not own such shares, no U.S. taxes would have been paid [citing Smidth].

Neal Armstrong. Summary of 15 December 2015 Memo 2014-0560371I7 under s. 20(12).