For the year ending December 31, 2020, Liane Stanfield has Net Income For Tax Purposes of $102,000. This includes foreign non-business income of $30,000. This amount was before the withholding of taxes by the foreign government of $6,000. In calculating her 2020 Taxable Income, she intends to deduct a net capital loss carry forward of $10,000 and a $30,000 non-capital loss carry forward. After applying her basic personal credit, the tax otherwise payable is $8,056. What is the amount of Liane's foreign non-business tax credit?

Question

Quizplus · Accepted Answer

To calculate Liane's foreign non-business tax credit, we need to determine her tax payable on her foreign non-business income before the credit, and then subtract the lesser of that amount or the foreign non-business taxes paid.

Liane's taxable income before considering the foreign non-business income is $102,000 - $10,000 (net capital loss carryforward) - $30,000 (non-capital loss carryforward) = $62,000.

Her tax payable on that income is calculated as follows:

- Federal tax on the first $48,535: $48,535 x 15% = $7,280.25
- Federal tax on the remaining $13,465: $13,465 x 20.5% = $2,758.83
- Total federal tax payable: $7,280.25 + $2,758.83 = $10,039.08

Liane's basic personal credit for 2020 is $13,229, which reduces her federal tax payable to $0.

Next, we need to determine how much of Liane's foreign non-business taxes can be credited against her Canadian tax liability. The maximum credit is the lesser of the foreign non-business taxes paid ($6,000) or the Canadian tax liability on that income ($10,039.08).

Since the foreign non-business taxes paid ($6,000) are less than the Canadian tax liability ($10,039.08), Liane can claim a foreign non-business tax credit of $6,000.

To summarize:

- Liane's tax payable before the credit was $10,039.08
- Liane's basic personal credit reduced her tax payable to $0
- Liane can claim a foreign non-business tax credit of $6,000
- Therefore, her final tax payable is $0 and she has a foreign non-business tax credit of $6,000.

For the Year Ending December 31, 2020, Liane Stanfield Has