CRA amends Folio S5-F2-C1 to permit disproportionate treaty-based claims for foreign partnership taxes

Today, CRA made some additions and changes to Folio S5-F2-C1, Foreign Tax Credit. One addition related to determining the amount of tax paid by a foreign partnership that should be treated as having been paid by a resident partner for foreign tax credit purposes.

Para. 1.39 continues to state:

The taxpayer's appropriate share of the foreign taxes paid is generally the same proportion of the total foreign taxes as the taxpayer's share of income is to the total income of the partnership.

However, CRA has now added para. 1.39.01, which states:

However, in certain circumstances a partner's share of the total tax paid by a partnership may be calculated differently. Where the amount of foreign tax is computed at the partnership level by reference to each member’s treaty entitlement and the particular partnership agreement adjusts the income allocation, the taxpayer’s pro rata share of the foreign taxes payable by the partnership is the partner’s pro rata share of the taxes that would be owing without taking the treaty into account, less the reduction attributable to the particular partner’s treaty entitlement.

CRA also added para. 1.45.1, which states that in the above situation, the documentary support “should demonstrate that the sum of the amounts of foreign tax considered to be paid by each member of the partnership does not exceed the total amount of foreign tax actually paid by the partnership.”

Neal Armstrong. Additional summary of Folio S5-F2-C1 - Foreign Tax Credit under s. 126(1).