I'm trying to make sure I understand the process when filing a return with foreign income. In 2023 I had a contract that was delivered in another country. The contact was for an after tax daily rate paid in Canadian dollars. As an example, for a after tax value of $10,000 and a 15% foreign income tax rate, the gross payment would be $11,765 with foreign tax of $1,765.
What I am seeing in TurboTax when I enter these values is the tax credit of $1,765, which is what I expected. I am also seeing more Canadian tax being deducted, which I did not expect. Is that because my Canadian tax rate is more than 15% and I am being taxed on the difference between what I paid in foreign tax and my Canadian rate? Or something else altogether? Thanks.
You are correct, it is likely that your income tax rate is higher in Canada, meaning that you should have paid more tax on that income than you did, so the difference between what you should've paid and what you've actually paid to the other country would be your Canadian income tax payable.
Thank you for choosing TurboTax.
You are correct, it is likely that your income tax rate is higher in Canada, meaning that you should have paid more tax on that income than you did, so the difference between what you should've paid and what you've actually paid to the other country would be your Canadian income tax payable.
Thank you for choosing TurboTax.