14 September 2010 External T.I. 2010-0379381E5 - Provincial foreign tax credit

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: Whether provincial foreign tax credits would be granted by the Province of BC or the Province of Ontario for U.S. federal and state estate taxes?

Position: No.

Reasons: Nothing in the Income Tax Act of BC or Ontario would provide for such a credit.

XXXXXXXXXX
									2010-037938
									S. Leung, CA

XXXXXXXXXX

September 14, 2010

Dear Sir or Madam:

Re: Provincial Foreign Tax Credits

We are writing in reply to your letter of May 25, 2009 in which you requested our view as to whether a foreign tax credit for federal and state estate taxes paid in the United States can be claimed against the British Columbia provincial tax otherwise payable on U.S. source income or gains included in the tax return of a deceased taxpayer in the year of death. We apologize for the delay in replying.

As you are aware, U.S. federal and state estate taxes are not income or profits taxes for the purposes of the definition of "non-business-income tax" in subsection 126(7) of the Income Tax Act (Canada) (the "Act") and as such are not eligible for foreign tax credits under the Act. However, under Article XXIX-B of the Canada-United States Income Tax Convention (the "Convention"), a Canadian federal foreign tax credit can be granted for federal and state estate taxes paid in the U.S. provided that all the conditions specified in paragraph 6 of that Article are met. It should be noted, however, that the Convention does not have the force of law in the Provinces and Territories of Canada and therefore Article XXIX-B of the Convention, which was entered into by federal authorities of Canada and the United States, does not bind the Provinces and Territories of Canada or the States of the U.S. As a result, unless there is a specific provision in the Income Tax Act (British Columbia) to provide for a special foreign tax credit in respect of U.S. estate taxes, only non-business-income tax as defined in subsection 126(7) of the Act would be eligible for foreign tax credits in the Province of British Columbia. Since U.S. estate taxes are not non-business-income taxes and since to our knowledge there is no specific provision in the Income Tax Act (British Columbia) to provide for such a credit, we are of the view that the U.S. estate taxes would not be eligible for foreign tax credits against taxes otherwise payable to the Province of British Columbia.

We also reviewed the Income Tax Act (Ontario) and in particular, subsections 4(4) (Deduction for income earned outside Ontario) and 4(6) (Foreign tax credit) of that act. We did not find any provisions in that act that would provide a credit for U.S. federal or state estate taxes. To avoid an unwarranted Ontario foreign tax credit being granted for U.S. estate taxes, we will provide a copy of this response to our Assessment and Benefit Services Branch to ensure that in the future all taxpayers' tax returns are assessed consistently.

Yours truly,

Olli Laurikainen, CA
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

cc. Nathalie Dumais, Director, Processing Division
Individual Returns Directorate
Assessment and Benefit Services Branch