US FTC - credit for CA tax on US-source income?

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skobes
Posts: 21
Joined: Sat Mar 25, 2017 10:41 pm

US FTC - credit for CA tax on US-source income?

Post by skobes » Tue Apr 02, 2019 10:13 pm

US citizen in Canada. On Form 1116 Part II "Foreign Taxes Paid or Accrued", can I include the entire CA tax liability, or only that which is in respect of CA source income?

Example:
- $1000 US source, $1000 CA source income, all general category and taxable to both countries
- CA taxes both at 20% = $400
- US taxes both at 15% = $300
- US FTC limited to $150 (US tax on CA source income)

What is the US FTC carry forward?
(a) $400 - $150 = $250 (all CA tax creditable)
(b) $200 - $150 = $50 (only CA tax on CA source income creditable)

My intuition was (b) but I can't find anything in either Publication 514 or Article XXIV to back up that restriction so now I am leaning towards (a).

CA FTC does have the inverse restriction, to the US tax "in respect of profits, income or gains which arise [...] in the United States" (XXIV(4)(a), and similar in ITA §126 defn. "non-business-income tax").

skobes
Posts: 21
Joined: Sat Mar 25, 2017 10:41 pm

Re: US FTC - credit for CA tax on US-source income?

Post by skobes » Tue Apr 02, 2019 10:23 pm

Should have included a third option
(c) CA FTC of $150 (US tax on US source) leaves CA tax (after credits) of $400 - $150 = $250, for US FTC carry forward of $250 - $150 = $100

nelsona
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Re: US FTC - credit for CA tax on US-source income?

Post by nelsona » Wed Apr 03, 2019 7:26 am

You can only include Cdn taxes on the Cdn income for your gen limitation and passive income 1116's.

Now, there may be situations where Canada does not grant any or full credit on US source income, such as US interest, and dividends, whereby you would filel a "re-sourced by treaty 1116. That has been explained elsewhere.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

skobes
Posts: 21
Joined: Sat Mar 25, 2017 10:41 pm

Re: US FTC - credit for CA tax on US-source income?

Post by skobes » Wed Apr 03, 2019 8:32 am

Thanks nelsona.

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