Provincial and territorial foreign tax credits

Every province and territory allows a corporation to claim a foreign tax credit for taxes it paid to another country on foreign non-business income.

However, you cannot claim foreign tax credits on the federal return for the provinces of Quebec and Alberta, because these provinces collect their own income taxes.

The provincial or territorial foreign tax credit is available to a corporation that:

• is resident in Canada throughout the tax year;
• has a permanent establishment in the province or territory at any time in the tax year; and
• has foreign investment income for the tax year.

For Ontario, an authorized foreign bank is eligible for the foreign tax credit if it performed Canadian banking business.

The tax credit can only be claimed if the foreign non-business income tax paid exceeds the federal foreign non-business income tax credit deductible for the year.

For each province or territory for which you are claiming a credit, you have to do a separate calculation. Also, if you paid tax to more than one foreign country you have to do a separate calculation for each country.

Claiming the credit

To claim the foreign tax credit, complete Schedule 21, Federal and Provincial or Territorial Foreign Income Tax Credits and Federal Logging Tax Credit.

On the appropriate lines of part 2 of Schedule 5, Tax Calculation Supplementary - Corporations, enter the provincial and territorial foreign tax credits.

Forms and publications

• Schedule 21, Federal and Provincial or Territorial Foreign Income Tax Credits and Federal Logging Tax Credit
• Schedule 5, Tax Calculation Supplementary - Corporations