If you've noticed that the foreign tax credit shown in your return is less than the foreign tax you paid, here's why:

The 15% Rule:

• The Income Tax Act limits the foreign tax credit to 15% of your foreign income
• This rule is automatically applied in Wealthsimple Tax

How it works:

1. Enter your foreign investment income and foreign tax paid
2. Check the Foreign Tax Credits Summary section
3. The non-business income tax shown may be less than what you reported

Example:

• Foreign investment income from the United States: $5,000 CAD
• Foreign tax paid: $800
• T2209 will show:
  • Foreign income: $5,000
  • Non-business income tax: $750 (15% of $5,000)

Why this happens:

• The limit ensures that the foreign tax credit doesn't exceed Canadian tax on the same income
• It applies even if you paid a higher tax rate in the foreign country

What you can do:

• Report all foreign income and tax paid accurately
• Understand that the limitation is applied automatically
• Keep records of all foreign income and taxes for your files

Remember:

• This rule applies to non-business foreign income
• Different rules may apply for business income or income from certain countries

Learn more about foreign tax credits from the CRA.

If you need assistance entering foreign income or understanding your foreign tax credit calculation in Wealthsimple Tax, please contact Wealthsimple support. For complex foreign income situations, consider consulting with a tax expert.