# U.S. Source Capital Gains and French Tax



## peterkarak

Hello, 

I've spent much time searching through posts, and the US-France Tax Treaty, and am still unclear on the French taxation of US source capital gains from the sale of equity fund shares. The terminology in the treaty is confusing to me and I am hoping that some US expats may be able to provide me with the information I've been looking for. 
I understand that we will report our worldwide income to France.
What I am trying to find out is, would we pay French tax on US source capital gains, or would they be taxed by the US?
And if we pay French tax on the gains, does anyone know if that would qualify for foreign tax credit (form 1116)?

Any help would be greatly appreciated.


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## Bevdeforges

OK - you definitely will have to pay US tax on the gains. As I understand it, though, you then report the gains on the French form 2047 (for foreign source income) and there is a way they calculate what (if any) tax is then due in France on the gains. They figure in the US rate and what you will pay to the US. You may get a better understanding of what's going on if you take a look at the "Notice" (i.e. the instructions) for form 2047 - though I don't see that they have posted the 2047 form and notice yet on the impots.gouv website. 

If you wind up paying French tax on the gains (possibly the difference between the US rate and the French rate), you should be able to claim that on the FTC form against other investment income.


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## peterkarak

OK, thank you Bev.
We don't pay any tax on our capital gains in the US because they are long term gains and are taxed at 0% in our tax bracket.
But I don't expect that that makes any difference to the French tax office. I guess we just report the gains and let them do their calculations.
And then, hopefully we can use the FTC form to help offset that payment.

Thanks again for responding to my post. I will keep an eye out for the instructions for form 2047.


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## newyorkerinparis

If you are an American citizen, you won't pay any French taxes on capital gains on US source income. Report the gains on Form 2047 under the category "revenus imposables ouvrant droit à un crédit d'impôt égal à l'limpôt étranger." Then, insert the total on line 8TK of form 2042. The amount will be included in your total household income (potentially affecting your marginal tax bracket), but you will receive a credit equivalent to the amount of the French taxes that would normally be due, thereby eliminating any French tax liability on the gains.


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## peterkarak

Thanks for your reply.


newyorkerinparis said:


> If you are an American citizen, you won't pay any French taxes on capital gains on US source income.


That's good news, if it only (potentially) affects our marginal tax bracket. In the US we pay 0% tax on our capital gains.
Thanks for the information on where to report the gains on forms 2047 and 2042.
I still don't understand how the credit works.


newyorkerinparis said:


> you will receive a credit equivalent to the amount of the French taxes that would normally be due, thereby eliminating any French tax liability on the gains.


Is the credit applied directly to the French tax return?


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## newyorkerinparis

peterkarak said:


> Is the credit applied directly to the French tax return?


Unlike in the US, you don't actually calculate the amount of tax that you owe. You just report all of your income on your declaration in the correct categories, and then the fisc will send you an avis d'impôt telling you how much to pay. When they calculate the amount you owe, they'll factor in the French tax credit as long as you've included the capital gains amount in the total on line 8TK.


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## peterkarak

Great, thanks a lot! 
So we just have to make sure to report the gains accurately, and the fisc should take care of the rest.
And we should end up paying no tax on those gains.
That's the answer I was looking for!
Thanks again.


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## Alexander B.

Box 8TK is under the category "Revenus imposables ouvrant droit a un credit d'impot egal a l'impot FRANCAIS"

But since we are US citizens, shouldn't we fill out the header that says "Revenus imposables ouvrant droit a un credit d'impot egal a l'impot ETRANGER"?

It's the difference between filling out numbers 6 and 7 on the 2047 form.

Would really appreciate if someone could clarify this. Am looking to declare interest, dividends, and capital gains from US accounts.


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## Bevdeforges

Alexander B. said:


> Box 8TK is under the category "Revenus imposables ouvrant droit a un credit d'impot egal a l'impot FRANCAIS"


That is the box you use for US pensions (US SS and IRAs and similar). The tax treaty specifies that this is how you report them.



Alexander B. said:


> Am looking to declare interest, dividends, and capital gains from US accounts.


Interest, dividends and capital gains go in sections 2 and 3 on the 2047 form. And I think that means that they then go in section 7 - because investment income from the US gives you a credit equal to the taxes paid to the US.


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## Alexander B.

Bevdeforges said:


> That is the box you use for US pensions (US SS and IRAs and similar). The tax treaty specifies that this is how you report them.
> 
> 
> Interest, dividends and capital gains go in sections 2 and 3 on the 2047 form. And I think that means that they then go in section 7 - because investment income from the US gives you a credit equal to the taxes paid to the US.


 Thank you. My understanding was that it would go into section 7 as well. But then I'm unclear why others above have spoken about entering capital gains in box 8TK (when that box corresponds to section 6 of the form). Do you understand that?


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## Bevdeforges

Alexander B. said:


> Thank you. My understanding was that it would go into section 7 as well. But then I'm unclear why others above have spoken about entering capital gains in box 8TK (when that box corresponds to section 6 of the form). Do you understand that?


No, but I use a tax prep software to do our taxes and that seems to direct your section 7 income to box 8VL (right below box 8TK on the 2042 form). Makes sense because that box is to report the taxes paid to a foreign government on investment income and capital gains. (Not being into investing other than my IRA in the US, I am probably not your best source for guidance here.)


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## newyorkerinparis

Bevdeforges said:


> Interest, dividends and capital gains go in sections 2 and 3 on the 2047 form. And I think that means that they then go in section 7 - because investment income from the US gives you a credit equal to the taxes paid to the US.


This is not true if you are a US citizen. In that case, investment income from the US gives you a credit equal to the FRENCH taxes. See Article 24 of the US-France income tax treaty -- look at sections 2(a) (the general rule) and 2(b) (the additional rules applicable to US citizens).


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## Bevdeforges

As I said before, I don't hold US investments, but looking at the consolidated version of the tax treaty, I read things a bit differently. Article 24 (on Relief from Double Taxation) says this about capital gains:


> (c) a resident of France who owns capital that may be taxed in the United States according to the provisions of paragraph 1, 2, or 3 of Article 23 (Capital) may also be taxed in France in respect of such capital. The French tax shall be computed by allowing *a tax credit equal to the amount of tax paid in the United States on such capital.* That tax credit shall not exceed the amount of the French tax attributable to such capital;


Still, report it in good faith however you interpret the treaty and see how the tax office handles it.


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## newyorkerinparis

Bevdeforges said:


> As I said before, I don't hold US investments, but looking at the consolidated version of the tax treaty, I read things a bit differently. Article 24 (on Relief from Double Taxation) says this about capital gains:
> 
> (c) a resident of France who owns capital that may be taxed in the United States according to the provisions of paragraph 1, 2, or 3 of Article 23 (Capital) may also be taxed in France in respect of such capital. The French tax shall be computed by allowing *a tax credit equal to the amount of tax paid in the United States on such capital.* That tax credit shall not exceed the amount of the French tax attributable to such capital;


The provision you quoted refers to taxes on "capital" under Article 23, which is not the same thing as taxes on "capital gains." Taxes on capital are taxes on the ownership of capital, like a wealth tax. According to the Treasury Department's technical explanation of Article 23, "Since the United States does not impose taxes on capital, the only capital tax now covered by the Convention is the wealth tax imposed by France." See https://www.irs.gov/pub/irs-trty/francetech.pdf

Taxes on capital _gains_, as well as taxes on dividends and income, are covered by Article 24(2)(b), which states

(b) In the case where the beneficial owner of the income arising in the United States is an individual who is both a resident of France and a citizen of the United States, the credit provided in paragraph 2 (a) (i) [i.e., the credit equivalent to "the amount of French tax attributable to such income"] shall also be granted in the case of:

(i) income consisting of *dividends *paid by a company that is a resident of the United States, *interest* arising in the United States, as described in paragraph 5 of Article 11 (Interest), or royalties arising in the United States, as described in paragraph 6 of Article 12 (Royalties), that is derived and beneficially owned by such individual and that is paid by:
(aa) the United States or any political subdivision or local authority thereof; or
(bb) a person created or organized under the laws of a state of the United States or the District of Columbia, the principal class of shares of or interests in which is substantially and regularly traded on a recognized stock exchange as defined in subparagraph (e) of paragraph 6 of Article 30 (Limitation on Benefits of the Convention) or
(cc) a company that is a resident of the United States, provided that less than 10 percent of the outstanding shares of the voting power in such company was owned (directly or indirectly) by the resident of France at all times during the part of such company’s taxable period preceding the date of payment of the income to the owner of the income and during the prior taxable period (if any) of such company, and provided that less than 50 percent of such voting power was owned (either directly or indirectly) by residents of France during the same period; or
(dd) a resident of the United States, not more than 25 percent of the gross income of which for the prior taxable period (if any) consisted directly or indirectly of income derived from sources outside the United States;

(ii) *capital gains* derived from the alienation of capital assets generating income described in subparagraph (i); however, such alienation shall be taken into account for the determination of the threshold of taxation applicable in France to capital gains on movable property;

(iii) profits or gains derived from transactions on a public United States options or futures market;

(iv) income dealt with in subparagraph (a) of paragraph 1 of Article 18 (Pensions) to the extent attributable to services performed by the beneficiary of such income while his principal place of employment was in the United States;

(v) income that would be exempt from United States tax under Articles 20 (Teachers and Researchers) or 21 (Students and Trainees) if the individual were not a citizen of the United States; and

(vi) U.S. source alimony and annuities. The provisions of this subparagraph (b) shall apply only if the citizen of the United States who is a resident of France demonstrates that he has complied with his United States income tax obligations, and subject to receipt by the French tax administration of such certification as may be prescribed by the competent authority of France, or upon request to the French tax administration for refund of tax withheld together with the presentation of any certification required by the competent authority of France.


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## Bevdeforges

This is where things get tricky. Article 25 in the Consolidated version of the treaty is headed up "Non-discrimination" - What you're quoting is one of the "technical explanations" rather than the treaty itself. I've always found it odd that the US only provides the individual agreements, amendments and "technical explanations" on the IRS website, when most of them primarily contain stuff like "in the treaty, paragraph XYZ should be amended to read as follows..."

The consolidated version of the treaty incorporates all those amendments, replacements and whatever into a single document. And oddly enough is only available (as far as I've been able to tell) through the French consulates in the US.


https://franceintheus.org/IMG/pdf/Consolidated_version_of_French-US_tax_treaty.pdf


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## newyorkerinparis

Bevdeforges said:


> This is where things get tricky. Article 25 in the Consolidated version of the treaty is headed up "Non-discrimination" - What you're quoting is one of the "technical explanations" rather than the treaty itself. I've always found it odd that the US only provides the individual agreements, amendments and "technical explanations" on the IRS website, when most of them primarily contain stuff like "in the treaty, paragraph XYZ should be amended to read as follows..."
> 
> The consolidated version of the treaty incorporates all those amendments, replacements and whatever into a single document. And oddly enough is only available (as far as I've been able to tell) through the French consulates in the US.
> 
> 
> https://franceintheus.org/IMG/pdf/Consolidated_version_of_French-US_tax_treaty.pdf


Except for the point in my first paragraph about Article 23, I was quoting directly from the treaty, not the technical explanation. But I made a mistake in the number of the provision -- it's article 24 (relief from double taxation), not 25 (non-discrimination). I'll correct it in the original post.


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## Bevdeforges

That article 24 is split into two sections, section 1 which tells how to claim your double taxation relief on French tax declarations and section 2 which refers only to filing US returns. Since you quoted from Article 24 (2) (b) I think what you posted refers to US tax returns, not French declarations.

Basically, for French declarations, there are 3 methods for relief from double taxation:
- the declare it all and then claim a tax credit at French rates
- the declare it all and then claim a tax credit for taxes paid to the US on the same income
- full exoneration of the income from taxation in France (rare, as far as I can tell)

For US tax returns, you basically come down to the FEIE (for "earned income" as defined by the IRS) or the Foreign Tax Credit (for each type of income involved).

Past that, I leave it to you to interpret all that legalese.


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## newyorkerinparis

Bevdeforges said:


> That article 24 is split into two sections, section 1 which tells how to claim your double taxation relief on French tax declarations and section 2 which refers only to filing US returns. Since you quoted from Article 24 (2) (b) I think what you posted refers to US tax returns, not French declarations.


It's the opposite -- section 1 of Article 24 sets forth how the United States provides relief against double taxation, and section 2 (the one I quoted from) applies "in the case of France." 

When I first came to France, I met with an accountant qualified in both France and the US, who informed me about this provision. She told me that it was a unique feature of the US-France tax treaty; France's tax treaties with other countries do not provide similar benefits to foreign nationals who earn investment income from their home countries. Based on her guidance, I have always declared my US-source investment income in the section on foreign income eligible for a credit at the French rates, and I've never run into any problems.


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## Bevdeforges

Maybe it has to do with who is compiling the document, but in the version I cited (obtained from the French Consulate in the US) section 1 of Article 24 starts with:


> 1. In the case of France, double taxation shall be avoided in the following manner:


And section 2 starts out:


> 2.(a) In accordance with the provisions and subject to the limitations of the law of the
> United States (as it may be amended from time to time without changing the general principle
> hereof), the United States shall allow to a citizen or a resident of the United States as a credit
> against the United States income tax:


Hm, something about the "translation" I guess. <g>


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## newyorkerinparis

Bevdeforges said:


> Maybe it has to do with who is compiling the document, but in the version I cited (obtained from the French Consulate in the US) section 1 of Article 24 starts with:
> 
> 
> And section 2 starts out:
> 
> 
> Hm, something about the "translation" I guess. <g>


That's interesting -- the version I was using, from the IRS (https://www.irs.gov/pub/irs-trty/france.pdf), is just the opposite! 

In any case, the language I was referring to comes from the section that begins "In the case of France, double taxation shall be avoided in the following manner:"


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## Bevdeforges

As I mentioned, the versions of the treaty available on the IRS site have traditionally consisted of a series of discrete documents (as listed here: rs.gov/businesses/international-businesses/france-tax-treaty-documents ) that include the 1996 treaty, a couple of "protocols", a couple of "technical explanations" and a "memorandum of understanding" - all of which document amendments to the 1996 treaty.

The consolidated version available from the French Consulate in the US pulls together all these separate documents, posting the various changes to the appropriate sections. I've always suspected that for whatever reason, the IRS doesn't really want anyone to have a single, consolidated version of "the treaty." I suppose that's why I have only been able to find the English translation of the consolidated version online. (Though perhaps there is the French consolidated version somewhere on the Fisc website.)

Ah, adventures in International fiscal politics!


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## Alexander B.

newyorkerinparis said:


> If you are an American citizen, you won't pay any French taxes on capital gains on US source income. Report the gains on Form 2047 under the category "revenus imposables ouvrant droit à un crédit d'impôt égal à l'limpôt étranger." Then, insert the total on line 8TK of form 2042. The amount will be included in your total household income (potentially affecting your marginal tax bracket), but you will receive a credit equivalent to the amount of the French taxes that would normally be due, thereby eliminating any French tax liability on the gains.


Just a question--line 8TK seems to be for declaring revenu "ouvrant droit a un credit d'impot egal a l'impot *francais*"

So, if as you are saying, capital gains qualify for "revenus imposable ouvrant droit a un credit d'impot egal a l'impot *etranger*", then wouldn't that information be entered on line 8VL?


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## newyorkerinparis

I apologize -- I wrote that too quickly and made a mistake. It should have said "ouvrant droit à un crédit d'impôt égal à l'impôt français." I'll correct the post if it's not too late to make edits.


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## Bevdeforges

If you look carefully at the form 2047, there is a column on the far right of each page that indicates what section or line or box the various items should be reported on form 2042. (At least on the version that prints out from Click Impot there is.) I would go by that.

The 2047 form has separate sections for the various forms of income - interest, capital gains (plus-values), etc. This year is the first time I have noticed those little guides on the far right of the page - very helpful, actually.


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## Alexander B.

Thank you both for this discussion, but I still feel lost! You both have differing viewpoints on this issue, with compelling evidence to back you up. 

I suppose what matters most is that you can justify how you interpreted the treaty. 

Ca reste un peu un mystère pour moi...


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## Bevdeforges

What I've done in the past is to take a stance and fill the forms out according to that stance. As long as you make sure you include all the relevant information on the forms, the tax office will be able to determine what's going on - and they will adjust things for you if they believe you have gotten it wrong. Just be clear as to what you are declaring and why (i.e. what country the various types of income are coming from). Keep notes with your copy of whatever you file so that you can explain if there are questions.

First time I filed after starting to take IRA withdrawals, the tax office called me to ask for clarification as to what this "IRA" thing was I was declaring. And, if you don't understand how they assess you for something (or think they may have made a mistake) you can always take an appointment with them after you get your Avis to go through it. (Right now things are a little busy at the tax offices.)


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## newyorkerinparis

I really don't think there's any ambiguity about the treaty. If you read the sections I quoted, they clearly provide that US citizens are entitled to a credit equal to the amount of the French taxes for US-source dividends, interest, and capital gains. The only evidence provided for a contrary interpretation was the reference to the section about taxes on "capital," but as mentioned previously, that section applies to taxes on ownership of capital under Section 23 of the treaty, not taxes on capital gains. 

In any event, I agree with Bev that as long as you provide all the relevant information in the forms, you have nothing to worry about. In my experience, the people in the tax office are very helpful and not at all adversarial.


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## assyadh

Chiming in to add to what @newyorkerinparis mentioned.
Indeed this is a unique disposition of the French US tax treaty. US sourced capital gains, dividends and interest are not taxable in France for a US Citizen residing in France. They are added to the income in France for computation of other taxes, and create a tax credit equal to the tax due in France. Quite unique.

Here is a thread with more info: https://www.bogleheads.org/forum/viewtopic.php?t=373511


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## trigger08

Thanks to all for the clarification, this is incredibly helpful as an American who moved to France in late 2021 and now trying to figure out the tax treatment of US interest and capital gains for my first paper French tax declaration. I have been a member of the Bogleheads forum for years but would not have thought to search there!


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## noblesse

Hello again, 
I have queried my French tax returns twice with my local impôts following NYIP’s advice and ‘won’my case both times. She knows what she’s talking about.


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## Bevdeforges

For those of us raised in the US and trained to avoid any and all contact with IRS agents of any sort, it's a huge culture shift to realize that the Fisc employees in the local tax offices are usually genuinely helpful. Just approach them in the right way - ask them to help you, rather than going in there swinging. I've even had the local office folk call me to ask about something I had entered on the 2047 form (foreign sourced income) - probably because it was the first time I drew money from my IRA account and they didn't understand what that was.


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## noblesse

And make sure you have lots of paper documentation! Too much is better than nothing at all.


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## trigger08

Now that I am actually sitting down to fill out Form 2047 (paper version as a first-time French taxpayer) I have a question for @newyorkerinparis or others who have applied the US-France tax treaty to investments before: 

Do we enter the separate amounts of dividends, interest, and capital gains (plus-values?) in sections 2 and 3, and then *ALSO* report them as a total amount in section 6? Or do we just enter them as a total in section 6? I see that in section 2 there are lines 210 and 240 for dividends and interest amounts "Revenus ouvrant droit à un crédit d’impôt égal à l’impôt français" so it seems we would enter them in both places but there is no corresponding line in section 3 for capital gains that qualify for a French tax credit.


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## Bevdeforges

One "fun" peculiarity of the French tax declaration forms is the tendency to have to report the same amounts or numbers in multiple lines, spaces, boxes and forms. Any number you report on form 2047 has to be also somewhere on form 2042. In fact, that's a general rule for all the forms. One thing that could help you is to download the instructions for form 2047 (Look on the impots.gouv.fr site for Notice 2047-NOT. And the "Notice" for the basic form, 2042 includes quite a bit of line by line "what goes here" including what other form the number should be coming from.)


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## Alexander B.

newyorkerinparis said:


> If you are an American citizen, you won't pay any French taxes on capital gains on US source income. Report the gains on Form 2047 under the category "revenus imposables ouvrant droit à un crédit d'impôt égal à l'limpôt étranger." Then, insert the total on line 8TK of form 2042. The amount will be included in your total household income (potentially affecting your marginal tax bracket), but you will receive a credit equivalent to the amount of the French taxes that would normally be due, thereby eliminating any French tax liability on the gains.


Just to double check--would we put the combined US Interest, Dividends, and Capital Gains all into line 8TK?

And if we also have other foreign (non-US) income, that should all go into the 8TK total right? And then we specify what it is in other parts of the form?


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## Bevdeforges

Not only line 8TK, but also on form 2047 which is for all your foreign source income. Take a look at the 2047 form on the Fisc website https://www.impots.gouv.fr/sites/default/files/formulaires/2047/2022/2047_3872.pdf and you'll see a column on each section of that form telling you where that income should appear on the main form (form 2042). It takes some getting used to, but for foreign source income (in particular) it often seems like you're putting the same information or numbers on multiple lines and forms. 

I have always found it useful to fill in form 2047 before you attempt to fill in income amounts on the main 2042 series forms. And I think that is actually necessary if/when you start filing online from the Fisc site - in which case, the system they use will transfer the appropriate balances for you.


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## Alexander B.

Thank you—that makes sense. One thing I’m struggling with is how to enter income from two different countries into form 2047 section 6.

On the paper form, it looks like that is possible. But, on the online declaration, I don’t see how to add a different country with separate income. Does anyone know how to do this on the online form?


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## BackinFrance

Alexander B. said:


> Thank you—that makes sense. One thing I’m struggling with is how to enter income from two different countries into form 2047 section 6.
> 
> On the paper form, it looks like that is possible. But, on the online declaration, I don’t see how to add a different country with separate income. Does anyone know how to do this on the online form?


You can add a line, though I don't remember how'. But I think there is either a pencil or something else in the bottom right hand corner of the box, at least there is before you fill it in. Finished mine late yesterday afternoon, but I found the platform was extremely unstable all this long weekend. You have until midnight tomorrow to get it done, but if you have problems you can sign it off and submit and still go back in and correct it. If you don't submit it before the deadline you lose the ability to submit electronically.


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