A Canadian resident, who owned a condominium in Florida for his personal use, disposed of the condominium at a gain that was taxed in the U.S., and utilized the personal residence exemption or, alternatively, capital loss carryforwards, to offset the gain. CRA stated:
[I]f the taxpayer's only qualifying income from a source in a country other than Canada is a capital gain and the capital gain is reduced to nil because of the provisions of paragraph 40(2)(b), no FTC can be claimed. On the other hand, if the taxpayer has sufficient non-business income from that particular country, a FTC may be claimed even though no tax under the Act arises from the income underlying the foreign tax (i.e., in this example, the capital gain was reduced to nil by paragraph 40(2)(b)).
… [I]f for a taxation year Mr. A decides to reduce the taxable capital gain to nil by claiming allowable capital losses, the tax consequences would be the same as those described in the previous paragraph for the purposes of the calculation under subsection 126(1).