Splitting foreign income received from a Trust, Partnership or Look-Through Company

Overview

Income can be distributed from a Trust (IR6), Partnership (IR7) and Look-Through Company (IR7) to an entity within TaxLab. However the software does not support the distribution of foreign income to a segment level. If more than one type or jurisdiction of foreign income has been received from a distribution, adjustments will need to be made in the recipient's tax return to correctly record the foreign income.

One segment of foreign income received from an IR6 or IR7

1. From the entity's tax year summary, in the navigation bar select Workpapers > Workpapers.
2. Under the Distribution heading, select Foreign income. 
3. Enter the relevant Type of income and Jurisdiction.

Two or more segments of foreign income received from an IR6 or IR7

1. From the entity's tax year summary, in the navigation bar select Workpapers > Workpapers.
2. Select New workpaper.
3. Add a foreign income workpaper. This will be used to reverse out the foreign income automatically populated by the distribution. You will need to set the following in the workpaper:

• Jurisdiction: enter exactly the same as the original distribution workpaper. Where possible, leave the distribution workpaper as XX - Unknown jurisdiction and set the new workpaper as the same.
• Type of income: enter exactly the same as the distribution workpaper. Where possible, leave the distribution workpaper as Other and set the new workpaper as the same.
• Description for segmentation: enter exactly the same as the distribution workpaper.
• Gross income: enter the negative amount of income that is in the distribution workpaper (ignore the red warning outline that will appear around the field, this only indicates that a value has been entered with an unexpected sign)
• Foreign tax paid: enter the positive amount of foreign tax paid that is in the distribution workpaper (ignore the red warning outline that will appear around the field)
• Narration: enter exactly the same as the distribution workpaper

The overall effect is that this workpaper combined with the workpaper created at the distribution net out to nil. It is important to note that any deviation from these settings will result in unexpected outcomes on your Tax Position and your Foreign Tax Credit calculation due to the workpapers having a differing segment or not netting out to nil.

        4. In Workpapers > Workpapers add foreign income workpapers for each segment of foreign income as required to declare the foreign income and tax credits received from the distribution. 

If the distribution from the trust is updated and the foreign income distribution changes, you will need to update the reversing workpaper (added in step 1 above) and the foreign income workpapers.

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