Lines 431 and 433 - Federal foreign tax credit

This credit is for foreign income or profits taxes you paid on income you received from outside Canada and reported on your Canadian return. Tax treaties with other countries may affect whether you are eligible for this credit.

If you paid tax to more than one foreign country, and the total non-business income tax you paid to all foreign countries is more than $200, you have to do a separate calculation for each country for which you claim a foreign tax credit. In that case, enter the total of your allowable federal foreign tax credit on line 42 of Schedule 1 or line 45 for residents of Quebec.

You also have to do a separate calculation for business income taxes paid to each foreign country. In that case, use Form T2209, Federal Foreign Tax Credits, to calculate your credit for both non business income taxes and the business income taxes paid to each foreign country. For tax years ending before March 23, 2004, you can carry unclaimed foreign business income taxes back three years and forward seven years. For tax years ending after March 22, 2004, the carry forward period is 10 years.

In most cases, the foreign tax credit you can claim for each foreign country is whichever of the following two amounts is lower:

• the foreign income tax you actually paid; or
  
• the tax due in Canada on your net income from that country.

Note
If you paid tax on income from foreign property (other than real property), your foreign tax credit for the income from that property cannot be more than 15% of your net income from that property. However, you may be able to deduct on line 232 the part of the foreign taxes you paid over 15%.

Beginning in 2004, your contribution to a foreign public pension plan is considered as a non-business income tax for foreign tax credit purposes where the following two conditions apply:

• you are required to make the contribution under the legislation of the foreign country; and
  
• it is reasonable to conclude that you will not be eligible for any financial benefit from your contribution considering that the employment in the foreign country was temporary and for a short period of time.

Note
U.S. FICA payments qualify for this credit.

For details on how to calculate your claim, read Interpretation Bulletin IT-270, Foreign Tax Credit and ITNEWS-31R2 Income Tax - Technical News.

Supporting documents - If you are filing a paper return, include your documents, such as official receipts, that show the foreign taxes you paid, and a note showing your calculations. Also include Form T2209, if you use it. If you paid taxes to the United States (U.S.), attach your W-2 information slip, U.S. 1040 return, and any other supporting documents that apply. If you are filing electronically, keep all your documents in case we ask to see them.

Your federal foreign tax credit on non-business income may be less than the tax you paid to a foreign country. If so, and you were not a resident of Quebec on December 31, 2006, you may be able to claim a provincial or territorial foreign tax credit. Get Form T2036, Provincial or Territorial Foreign Tax Credit, to help you calculate the credit.

If you were a resident of Quebec on December 31, 2006, see the guide for your provincial income tax return for Quebec.

Also, on line 232, you may be able to deduct the amount of net foreign taxes you paid for which you have not received a federal, provincial, or territorial foreign tax credit. This does not include certain taxes you paid, such as those on amounts you could have deducted under a tax treaty on line 256. For details, get Interpretation Bulletin IT506, Foreign Income Taxes as a Deduction From Income.

Completing your tax return

• Do all of your calculations in Canadian dollars.
• Complete Form T2209 if you decide, from the information above, it applies to you.
• On line 42 or line 45 for residents of Quebec of Schedule 1, enter your federal foreign tax credit from line 10 of your Form T2209.

Otherwise:

• On line 431 of Schedule 1, enter your non-business income tax paid to a foreign country.
• On line 431 of Schedule 1, enter the amount shown in the financial statements or in boxes 81 and 82 of your T5013 or T5013A slip if you were a member of a partnership and are entitled to claim a part of the foreign taxes the partnership paid.
• On line 433 of Schedule , enter your net foreign non-business income.
• On line 42 or line 45 for residents of Quebec of Schedule 1, enter the result of your calculation.

Be sure to complete the tax and credit form for your province or territory of residence as the provincial or territorial credit is calculated separately.

Forms and publications

• General Income Tax and Benefit Guide
• Schedule 1, Federal Tax
• Form T2036, Provincial or Territorial Foreign Tax Credit
• Form T2209, Federal Foreign Tax Credits
• IT270, Foreign Tax Credit
• IT506, Foreign Income Taxes as a Deduction From Income
• ITNEWS-31R2, Income Tax - Technical News, No. 31R2

Related topics

• Line 232 - Other deductions
• Line 256 - Additional deductions