Tax Credits

AuthorVern Krishna
ProfessionProfessor of Common Law, University of Ottawa Barrister at Law
Pages389-393
389
CH AP TER 15
TA X CR EDITS
A. gENER A L COMM ENT
Canadian re sidents are subject to full tax l iability on their worldwide
income. Hence, a taxpayer may be subject to double taxation to a for-
eign government for income taxed at source, and to Canada on the
basis of residence. A resident taxpayer may, however, claim a credit
against Canadi an tax for taxes paid to a foreign government.1 The
foreign tax credit, which one calcul ates separately in respect of each
country, relieves juridical double taxation, but does not provide any
relief from economic double taxat ion.2 For example, if company A in
Canada owns 5 percent of company B in the United States, income that
company B earns is t axable in the United States. The foreign ta x credit
merely provides relief from the tax on any dividends that company B
pays to A, and not on the underlying US corporate tax.
The tax credit is avail able only in respect of obligatory taxes paid
to a foreign government. Discretionar y foreign taxes levied by a foreign
government that would not have been imposed if the t axpayer were not
entitled to a Canadia n foreign tax credit are not eligible for credit in
Canada.3 The rationale for this r ule is that the Canadian government
does not want to f‌inance foreign governments by encouragi ng them to
1 Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], s 126.
2 Ibid, subs 126(6).
3 Ibid, subs 126(4).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT