Expenses related to foreign income

[nanic]

When I fill out form 1116, are amount taken off my pay for federal, provincial taxes as well as CPP, EI and private pension plan contribution are considered eligible expenses. Last year I just deducted the federal taxe portion.

[JGCA]

There was contrversy in the past over the CPP being allowed as a credit the EI was always allowed, now one can also claim the CPP as an eligible credit as part of their FTC along with the federal tax paid. I believe tha pension paln however are not credited but may be taken as a deduction.

[nelsona]

IRS rules forbin using foreign social security payments as a tax credit, but, thankfully, the Canada-US tax treaty overrides this, and CPP and EI are both creditatble, against the wage portion of foreign income.

But for the fed and prov TAX, you must use the calculated tax, not the withheld amount.

[nanic]

Thanks for the info. I always endup owing more that what is witheld so I will us that amount.

[nelsona]

It comes down to using the "paid" method vs. the "accrued' method.

Like you said, the "paid" marthod (using the withheld ammounts) works if you never gete a refund and if you are having foreign income year after year (remember to include the payment you sent with last year's tax return as part of your "paid" income tax fior this year.

But it is generally simpler to use the "accrued' method, based on your finalized tax returns. the drawback thereis if you ammend your returns, you may need to go back and change your 1116's. The paid method is more forgiving, as you have most of the tax year to fix last year's final payment.

Whatever works.