When you’ve paid foreign tax on certain types of foreign property income, you can claim a section 20(12) deduction (which reduces your net income by the amount of foreign tax paid),1 or a foreign tax credit (which reduces your tax payable dollar-for-dollar by the amount of foreign tax paid).2
Generally, a person with less tax payable (because of having a lower income or being eligible for many tax credits) will be better off claiming the section 20(12) deduction, while others will be better off claiming the foreign tax credit.
The rules about what can be claimed as a 20(12) deduction are strict and depend on the amount of the foreign tax paid, the source country of the income, and the type of the income (e.g., you can’t claim 20(12) deductions for trust/T3 income); all these rules are built into our optimization algorithm. Learn more about foreign tax credits and section 20 deductions.
To maximize your refund, Wealthsimple Tax automatically determines whether you should claim a section 20(12) deduction, a foreign tax credit, or a bit of both. If you would like to override the optimized section 20(12) deduction, enter the amount you would like to claim (or $0) in the Foreign Tax Credits section and then lock it in the Optimizations section.
Section 20(12) deductions will be included on line 23200 of your T1 General.
Foreign tax credits are calculated on form T2209 and T2036 and included on line 405 of your Schedule 1 and also on your provincial form 428 (TP-1 in Québec).