Line 636 - Federal foreign business income tax credit
Line 636 - Federal foreign business income tax credit
Use Schedule 21, Federal and Provincial or Territorial Foreign Income Tax Credits and Federal Logging Tax Credit, to calculate this credit.
To prevent double taxation, a corporation that pays foreign tax on income or profits it earned from operating a business in a foreign country can claim a federal foreign business income tax credit. This credit reduces the Part I tax that the corporation would otherwise have to pay.
Unlike foreign non-business income tax, you cannot deduct excess foreign business income tax paid as a provincial or territorial foreign tax credit. However, under section 110.5, you can increase taxable income so as to claim an otherwise non-deductible foreign business income tax credit. See Line 355 on page 74 for details.
To claim this credit, complete Part 2 of Schedule 21. Calculate the foreign business income tax credit for each country separately. Use more than one schedule if more space is required.
Add all allowable foreign business income tax credits in column J on Schedule 21. Then, enter the total allowable credits or a lesser amount on line 636.
Notes
Foreign business income tax does not include any
foreign tax paid on income that is exempt from tax in
Canada under an income tax treaty.
When calculating income for the year from sources in a foreign country, deduct the maximum amount of foreign exploration and development expense that is deductible on a country-by-country basis.
References
Subsection 126(2)
S5-F2-C1, Foreign Tax Credit
Continuity of unused federal foreign business income tax credits
Complete Part 3 of Schedule 21 if you have a foreign business income tax credit that:
-
expired in the current year
-
was transferred from an amalgamation or wind-up
-
was deducted in the current year, or
-
was carried back to a previous year
You have to establish the continuity and the application of the foreign tax credits on business income for each country. Use more than one schedule if more space is required.
Carryback or carryforward of unused credits
You can carry back any unused foreign business income tax credit to the 3 previous tax years, and you can carry the credit forward for 10 tax years.
To claim a carryback to previous years, complete Part 4 of Schedule 21.
Note
You can use this credit only to reduce Part I tax on
income originating from the same foreign country.
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