Does the amount to be deducted in computing the refundable portion of Part I tax (the “Refundable Portion”) - being the least of the amounts determined in ss. (a)(i) to (iii) of the definition of NERDTOH in s. 129(4) - always correspond to the foreign tax deduction (FTD) otherwise claimed by the corporation under s. 126(1) in respect of its foreign non-business income, reduced by 8% of the foreign investment income (FII), even if no tax is withheld by the foreign country on such investment income – for example, on the sale of shares of a foreign public company listed on a foreign stock exchange resulting in a capital gain?
CRA confirmed that this deduction for 8% of FII in the formula applies regardless of whether a foreign country levied a tax on foreign source income, and explained that this was not what the 8% deduction was for. The 8% represents the difference between a deemed tax rate of 38 2/3% on the CCPC's FII (i.e., the sum of the 28% federal corporate tax rate applicable to the CCPC's AII and the 10 2/3% rate applicable to such income under s. 123.3) and the refundable amount thereof at the rate of 30 2/3%.