Foreign Tax Credit Sale US Property

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stannd
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Joined: Tue Jul 19, 2016 11:33 am

Foreign Tax Credit Sale US Property

Post by stannd »

Hi Nelsona,

Hoping for some help on my Canadian return. I’m a resident of Canada and sold my US property for which I’m NOT claiming the principal residence exemption for in Canada or the US. So, I will have capital gains to report on both my US return and Canadian return.

I’m confused about how to take the foreign tax credit on the Canadian side. I did a bit of research and concluded that this income is Non-Business income. On my software, I have the option of putting it in 1) Investment, 2) Real Property, or 3) Other. The foreign tax credit is different depending on how I classify it. This is because 1) Investment allows 20(11) deduction AND 20(12) deduction, 2) Real Property only allows 20(12) deduction and 3) Other does NOT allow either. Which “bucketâ€￾ do I put it in?

If I enter just normal capital gains on the foreign income screen, it gets pulled into 3) Other. But are capital gains from real property treated differently?
Furthermore, do I include the FULL capital gain in my calculation of non-business income OR just the TAXABLE capital gain (50%). I think it must be the 50%.

Any help would be greatly appreciated.
nelsona
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Post by nelsona »

It is real property. They are treated differently because most treaties "re-source" foreign capital gains EXCEPT for real property, which remains fully taxable by the foreign country, and most other foreign tax arising from "investment" would be flat-taxed at 15% or less.

As with any foreign income, You include only the amount that was included in your taxable income on your Cdn return, which would be 50% of the gain. The credit should NOT be limited by any 15% FTC limit however, assuming your tax rate on your US return was more than this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
stannd
Posts: 9
Joined: Tue Jul 19, 2016 11:33 am

Post by stannd »

Ok thanks so much for your help!

Is it weird that when I put an amount in the "foreign capital gains and losses" section on the foreign income screen that it pulled the income into the "Other" bucket instead of the "Investment" bucket? When would one ever put capital gains in the "Other" bucket or even "Investment" bucket for that matter?

Based on your response I suppose that ALL "non-real property" foreign capital gains from the US would never even show up in the foreign income calculation at all because they would be resourced to Canada and just go on Schedule 3 like normal Canadian capital gains, is that correct?

Thanks.

Stan
nelsona
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Post by nelsona »

Correct. Think of the millions of Cdns who invest in a US company. They never have to pay US taxes on gains. Only dividend income from US companies, which is flat taxed and would be reported as FTC against the dividend income.

How a software firm decides to code these things is their business. But the reason is likely because most investment income (dividends, interest) has a 15% limit, while cap gains do not, so are treated like "other" income (pensions, wages, etc).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
stannd
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Joined: Tue Jul 19, 2016 11:33 am

Post by stannd »

Thank you!

There is a separate bucket for “employment Incomeâ€￾ (so 4 buckets total – employment, other, investment and real property).

The only two sources of foreign income that get pulled into the “otherâ€￾ bucket is foreign capital gains and pension income. So, my guess is the only time “Otherâ€￾ would ever be used for foreign capital gains is if you had non-real property foreign capital gains from a non-treaty country (because they are not re-sourced). This doesn’t apply to me anyway, but I thought it was curious.

I also have rental income for this property. Would this income go in the Real Property bucket as well, or perhaps Investment or Other?

Stan
nelsona
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Post by nelsona »

I repeat: How a software firm decides to code these things is their business
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
stannd
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Joined: Tue Jul 19, 2016 11:33 am

Post by stannd »

Got it, thank you. I should have clarified better; the software does not code rental income, it must be inputted manually.

There is no spot for rental income on the foreign income screen, so both the US rental income from the T776 and US foreign tax paid on the rental income have to be manually entered on the foreign tax credit screen.

Any input on what bucket the rental income and tax should manually go in would be much appreciated.

Stan
nelsona
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Post by nelsona »

1-800-CALL-SOFTWARE
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
stannd
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Joined: Tue Jul 19, 2016 11:33 am

Post by stannd »

For anyone following this thread, I was able to figure this out by faking an entry on a T5013 slip. There was a spot for foreign rental income in box 111. It pulled the foreign rental income into the “Real Property bucketâ€￾, which makes sense, because this income should not be limited. So rental income and capital gains from the sale of a foreign property are treated the exact same way.
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