I think I encountered a serious error in the formula for calculations of the Foreign Non Business Tax Credit (FNBTC), which in most cases means tax on foreign pensions. The formula provided in the T2209 form calls for entering the Basic Federal Tax which is calculated after subtracting Non-Refundable Tax Credits. This formula produces absurd results. To simplify it a bit, let's consider only total foreign and Canadian income that is below the 15% tax threshold level.

First, regardless of the foreign income and the total income that includes the Canadian part, the formula generates double taxation as it always generates some extra tax. But going even further, with the constant foreign income, the higher is the Canadian portion of the income, the highe is the FNBTC and the lower is the tax demanded by CRA as a result of reporting a foreign pension. The vice versa, the lower is the Canadian portion, the higher is the tax demanded by CRA. Such results are absurd and they contravene the essence of any Convention between Canada and other countries which purpose is exattly to be avoiding double taxation.

The reason for these erroneous results is, as I figured out, that instead of the Basic Federal Tax (Line 429) there should be used tax from the line 404 which is total tax BEFORE applying the Non-Refundable Tax Credits. If that formula is used, all results make sense and are in line with international tax Conventions.

I am not a tax accountant but this problem applies to my situation and that is how I got involved. Yet, it is hard to imagine that such an important glitch can be in the system. If it is, it then affects thousands vulnerable first generation immigrants who most likely live on a low budget, have limited command of the English language and Canadian Tax Laws, and who generally are unwilling or afraid to challenge tax authorities.

Please, let me know if you think that my understanding of the challenge is right or I make somewhere a serious error.