I spoke with the CRA and tried to get an answer on this but no luck. Here are the facts-My US return has 10,236 of income sourced to US. My total income is 68,476. My total tax before the foreign tax credit for taxes paid to Canada is 6,259. I get the standard deduction and exemptions of 12,600 and 8,000 which brings the taxable income to 47,876.
My question is, how do I determine the US tax paid on the 10,236 of income to report as the tax paid on the Canadian return? I figured I would do the calculation the same way the US FTC is calculated by taking the percentage of 10,236 over gross income and then applying it to the standard deduction and then getting the % of taxable income before the exemption. See Form 1116 Line 21.
Is this an OK method? The CRA does not appear to have any standardized rule. Or would I just take a percentage to gross income which is 10,236/68,476 X total tax of 6,259?
Either way, it comes out about the same but I just wanted to see if there is an established way the CRA requires.
Thanks for any help!!!!
Calculation of US tax paid for FTC on T1
Moderator: Mark T Serbinski CA CPA
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Canadian Newbie
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Barring any income that is specially taxed by IRS, you take TAX calculated on your 1040 after all credits and deductions (except foreign tax credits from 1116) and divide it by the the ADJUSTED GROSS income reported on your US return. That is your effective tax rate.
Then, whatever US income you report on your T1, the tax is that income multiplied by the effective tax rate above.
Then, whatever US income you report on your T1, the tax is that income multiplied by the effective tax rate above.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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Canadian Newbie
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