Calculating taxes for foreign tax credit.

[Mrwalleye]

Not sure why it didn't accept my first question?  I was typing in numbers not SSN numbers etc??

I have foreign interest income with no 1099 showing any taxes deducted.  It is included it in my income on the Canadian return so therefore paying taxes on it.

To calculate the taxes I am paying on this foreign interest do I just take the overall tax owing in Canada, divide by the income being taxed and multiple by the interest income.

That way I kinow what portion of the taxes go to the interest?  I then fill in a 1099 as though I received one?  The number I arrive at goes in the foreign income box of 1099R?

Because I don't have a slip showing taxes witheld .. I would need to file T1116.  Does the program run me throught that?

Please let me know if I am on the right track.

[Anonymous]

nope  first you must convert from Canadian $ to US $    if you received it throughout the year use the average exchange rate for the year.  

then om 1099-int you enter name of company paying

them the interest in US $  line 1

then the foreign tax paid in US $ line 6

TT will compute the allowable amount

form 1116 may not be required in which case do not enter anything else in box 6

Election To Claim the

Foreign Tax Credit Without

Filing Form 1116

You may be able to claim the foreign tax

credit without filing Form 1116. By

making this election, the foreign tax

credit limitation (lines 15 through 21 of

the form) won't apply to you. This

election is available only if you meet all

of the following conditions.

• All of your foreign source gross

income was “passive category income”

(which includes most interest and

dividends). See c. Passive Category

Income, later. However, for this

purpose, passive income also includes

(a) income subject to the special rule for

High-taxed income described later, and

(b) certain export financing interest.

• All the income and any foreign taxes

paid on it were reported to you on a

qualified payee statement. Qualified 

payee statements include Form

1099-DIV, Form 1099-INT,

Schedule K-1 (Form 1041),

Schedule K-1 (Form 1065),

Schedule K-1 (Form 1120S), or similar

substitute statements.

• Your total creditable foreign taxes

aren't more than $300 ($600 if married

filing a joint return).

This election isn't available to estates

or trusts.

If you make this election, the

following rules apply.

• You can't carry over to or from any

other year any foreign taxes paid or

accrued in a tax year to which the

election applies (but carryovers to and

from other years are unaffected). See

the instructions for line 10, later.

• You are still required to take into

account the general rules for

determining whether a tax is creditable.

See Foreign Taxes Eligible for a Credit

and Foreign Taxes Not Eligible for a

Credit, later.

• You are still required to reduce the

taxes available for credit by any amount

you would have entered on line 12 of

Form 1116. See the instructions for

line 12, later

[Mrwalleye]

Just assumed the conversion was a given but thanks anyhow ...I have a bank slip but it does not show any taxes witheld so ......based on what you posted ..........

All the income and any foreign taxes paid on it were reported to you on a qualified payee statement. Qualified payee statements include Form1099-DIV, Form 1099-INT,Schedule K-1 (Form 1041),Schedule K-1 (Form 1065),Schedule K-1 (Form 1120S), or similar substitute statements.

This is the section that won't allow not using the Form 1116 as far as I can see.

Also on Form 1116 ... question 18 cautions if tax was calculated on lower rates .... are they referring to foreign tax or USA tax?  The USA tax was calculated with a capital gain ... ended up a capital loss in Canada.

I feel like I am sinking..

[daniel-j-morton]

It depends if you are a US or Canadian resident and where the interest is arising (sourced).

If you are a Canadian resident then per the US-Canada tax treaty article XI, the interest arising in the US received by a Canadian resident is exempt from US federal tax. Conversely, if you are a US resident and receive interest income from a Canadian source then it is exempt from Canadian taxes. 

https://www.irs.gov/publications/p597#en_US_201510_publink[phone number removed]