The CRA recently issued Technical News number 31 discussing the treatment of social security taxes as a foreign tax credit. In the past, the CRA has permitted foreign social security taxes to qualify as a non-business income tax for purposes of the foreign income tax credit. The CRA has now changed its treatment and will no longer allow social security taxes, other than U.S. social security taxes collected under the FICA, to be eligible for a foreign tax credit.
The only reason that the U.S. social security tax is allowed as a tax credit is because of the Canada-U.S. Income Tax Treaty.
This will have implications for any clients who earned a foreign social security income from countries other than the United States.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.