FTC with CERB and foreign earned income exclusion

[mackayr]

OK ... I have a simple situation, and would like to clarify the completion of form 1116.

All figures in USD for convenience:
Single Canadian resident, US citizen
Canadian employment income = $7,500 (qualifies for 2555 foreign earned income exclusion)
CERB = $12,500
No other income worldwide
Canadian tax = $2,500
US tax before FTC = $10
Canadian tax on CERB = $1,562.50 ($12,500 / 20,000 X 2,500)

My software is putting the full foreign tax paid in line 12, resulting in no FTC (ie. line 14 = nil). Is this correct, or should he be entitled to a FTC of $10?
(ie. lessor of $10 and $1,562.50)

Of course, I'd normally trust the software, but I'm also aware that garbage in = garbage out. The situation I described above should be simple enough to manually determine the key amounts on the schedule.

Yes ... I know ... in this instance, it's only $10, but I consulted with another colleague who has 4-5 clients who missed out on hundreds in missed FTCs because of the same mechanism (with different software).

As far as I can determine, line 11 should reflect the entire foreign tax paid on general category income, and line 12 should reduce this amount by the portion that relates to the 2555 excluded income, leaving only the amount attributable to the CERB income on line 14.

[nelsona]

The maximum entitled FTC would be 6.25: 12,500/20,000 x 10.

[nelsona]

Don't forget that the standard deduction is also prorated over the income.

[nelsona]

sory, just to correct myself, since the earned income was excluded, the entire US tax is related to the CERB income reported, so all is eligible for FTC. Why none is being credited would need to look at how the income was reduced on 1116.