US and Canadian business income...reporting problem in TC

T1
1

I have a client with Canadian business income and US commission income (YouTube) and some small amount of US tax paid.

In TC I’ve filled all the CDN income and all the expenses (including home office) on the T2125, and the US source on “Foreign”. The incomes transfer to the T1 fine in total, but there are two curious problems:

  • the office in home expenses cap out because the two incomes don’t combine on the T2125, otherwise should be fully allowable.

  • the tax calculation shows a Federal surtax on income earned outside Canada and then an FTC that is actually greater than the tax amount paid. US income is around $40K CDN, Tax Paid is about $2K and the surtax is almost the same amount. The FTC, however, is closer to $6K.

I’ve not run into this before and can’t figure out how to report the first issue and the second one makes no sense (but I’m going to bet that TC folks are smarter than me?).

2

Would you not just convert the business income rec’d in US Funds to Canadian Funds and include in the T2125?

3

Yes - but then the FTC part doesn’t work (at least I can’t get it to!).

4

Might it work if you then manually inputted the amounts on the FTC worksheet?

5

Yes - I think this works. The surtax goes away (I don’t believe it applies as the business has its PE in Canada, so only Fed/Prov rates should apply) and the client is full-time resident here.

So, the foreign income is now on a separate line in the T2125 for ease of recognition, the amounts of both income and tax are on the FTC schedule and the amounts seem to be correct in total.