Foreign Income

Schedule 8 and T-Slips

The foreign investment income section on Schedule 8 allows you to enter foreign investment income for up to five countries. Foreign investment income reported on T3, T5 or T5013 slips can be entered on the appropriate T-Slip form (T3I, T5 or T5013). These amounts will update to the TSUM form and then to the appropriate section on Schedule 8. On the T-Slip forms, simply enter the country number, gross income and foreign tax paid. The country number is the section number on Schedule 8 to which the income should update.

The FORINC Schedule

The purpose of the FORINC schedule is to determine the net foreign non-business income and foreign non-business income tax paid for up to five countries. These amounts are used to:

• determine the foreign income and foreign tax that can be designated to beneficiaries, and.
• calculate the trust's foreign tax credit if any of the foreign income is taxed in the trust.

While less common, the FORINC schedule is also used to determine the net foreign business income and foreign business income taxes paid.

Foreign investment income automatically updates from Schedule 8 to FORINC. If the foreign tax paid on the foreign investment income exceeds 15%, the related ss. 20(11) deduction is calculated on the FORINC schedule and updated to the OID schedule.

Foreign rental income updates from the T776 form. Rental income can be identified as foreign on the T776 form by completing the country number field just below the rental period fields.

Other Sources Of Foreign Income

There are input fields on FORINC that can be used to indicate the foreign portion of income already reported elsewhere in the return. For example, all capital gains should be reported on Schedule 1. If any of the capital gains are foreign, you should identify the foreign portion and foreign tax paid on the FORINC schedule.

Foreign Tax Credits

The Federal Foreign Tax Credit (T3FFT) and Provincial Foreign Tax Credit (T3PFT or Québec TP-772) are calculated automatically using the net foreign income and foreign tax paid from the FORINC schedule, after designations to beneficiaries.

Subsection 20(12) Deductions

Under ss. 20(12), a trust may deduct the portion of the non-business foreign taxes not claimed as a foreign tax credit. However, claiming a ss. 20(12) deduction also reduces the foreign tax available for designation to beneficiaries. Accordingly, if there are unused non-business foreign taxes in the trust, there is a trade-off. You can minimize tax payable in the trust by claiming a ss. 20(12) deduction or you can maximize the foreign tax available for designation to beneficiaries. If you decide that claiming a ss. 20(12) deduction is appropriate, enter it on the FORINC schedule. Note that the ss. 20(12) deduction is claimed on a country-by-country basis.

If you determine that a ss. 20(12) deduction is appropriate, there is an optimization on the FORINC form that you can invoke to determine the ss. 20(12) deduction that results in no unused foreign non-business tax in the trust. As the ss. 20(12) optimization is a circular calculation that can cause the return to be calculated many times, the calculation is normally invoked only upon request (by completing the appropriate cell near the bottom of the FORINC schedule).

If, after having invoked the optimization, any income or deduction amounts on the return are changed, you should invoke the optimization again. As a safety precaution, there is an option on the FORINC schedule that causes the optimization to be invoked anytime you save or print the return.

The ss. 20(12) deduction entered on the FORINC schedule is updated to the OID schedule.

Miscellaneous Deductions Applicable to Foreign Income

Net foreign non-business income is reduced on the FORINC schedule by the amount of the ss. 20(11) and ss. 20(12) deductions and by the foreign carrying charges. The net foreign income might be further reduced by other deductions and/or losses on the S9SUP form (used for determining the various income pools available for allocation to beneficiaries). Any deduction/losses so applied against foreign income on the S9SUP form are updated back to the FORINC schedule.