Deduction of US taxes from employment income Section 20(12)
Moderator: Mark T Serbinski CA CPA
Deduction of US taxes from employment income Section 20(12)
I am a student who's tuition and education tax credits (carried over from many years) cancels out all federal and provincial income taxes. However I do have a small amount of US employment income from which FICA and NJ state income tax are deducted. I can not take advantage of the Foreign Tax Credit as I have no tax owing (due to the tuition and education tax credits). However, I'm wondering if I can deduct the FICA and NJ state income tax from my income using Section 20(11) or 20(12). This would reduce my Ontario Health Premium and would allow me to carry over more tuition and education amounts into future years. Can I do this? I read somewhere that employment-related income taxes CAN NOT be deducted from income (for some reason). Is this accurate?
Basically, the simplified version is:
- 20(11) deduction covers non-real foreign property income taxes which exceed 15% (Foreign Tax Credit is limited to 15% on non-real foreign property income).
- 20(12) deduction covers any non-real foreign property income taxes which are not deducted under 20(11) or which are not used for the Foreign Tax Credit calculation.
Both 20(11) and 20(12) deductions are taken on Line 232 of the T1. Line 256 deductions are used for income exempt by treaty, such as US Social Security benefits.
So if you have any non-real foreign property income taxes paid, then you can use up to 15% of the income for a foreign tax credit, or you can take it as a Line 232 deduction, or any combination thereof (but anything used as a 20(12) deduction cannot be used in the FTC calculation).
However, employment income taxes are not allowed under 20(12) deductions because they are restricted by subsection 8(2). So foreign employment taxes must be used for Foreign Tax Credits, or else they are just lost.
- 20(11) deduction covers non-real foreign property income taxes which exceed 15% (Foreign Tax Credit is limited to 15% on non-real foreign property income).
- 20(12) deduction covers any non-real foreign property income taxes which are not deducted under 20(11) or which are not used for the Foreign Tax Credit calculation.
Both 20(11) and 20(12) deductions are taken on Line 232 of the T1. Line 256 deductions are used for income exempt by treaty, such as US Social Security benefits.
So if you have any non-real foreign property income taxes paid, then you can use up to 15% of the income for a foreign tax credit, or you can take it as a Line 232 deduction, or any combination thereof (but anything used as a 20(12) deduction cannot be used in the FTC calculation).
However, employment income taxes are not allowed under 20(12) deductions because they are restricted by subsection 8(2). So foreign employment taxes must be used for Foreign Tax Credits, or else they are just lost.
Just wanted to clarify the 2nd last paragraph from previous post. It should be...
So if you have any non-real foreign property income taxes paid, then you can use up to 15% of the income for a foreign tax credit, or you can take ALL of it as a Line 232 deduction (20(11) and 20(12)), or any combination thereof (but anything used as a 20(12) deduction cannot be used in the FTC calculation).
Anyway, unfortunately you cannot use the employment taxes for a 20(12) deduction. Employment taxes are restricted by subsection 8(2).
So if you have any non-real foreign property income taxes paid, then you can use up to 15% of the income for a foreign tax credit, or you can take ALL of it as a Line 232 deduction (20(11) and 20(12)), or any combination thereof (but anything used as a 20(12) deduction cannot be used in the FTC calculation).
Anyway, unfortunately you cannot use the employment taxes for a 20(12) deduction. Employment taxes are restricted by subsection 8(2).