Income from outside Canada can make filing your taxes more complicated. The rules are different depending on if you are resident in Canada or if you are non-resident. If you’re a resident, you must declare any income earned outside of Canada on your Canadian tax return.
Non-Residents declare foreign income in Canada
Non-residents declare net income earned outside of Canada so you can use the non-refundable tax credits in Canada. Your non-Canadian income isn’t taxed in Canada, but it affects your non-refundable tax credits.
NOTE: You might have to report your Canadian income to the tax department in the country where you live. And use the Canadian tax payable as a credit for your tax return there. It is usually best to first file your Canadian tax return to determine your net Canadian income and taxes payable. Then file your resident country’s tax return.
See also ‘Filing Tax as a Non-Resident‘
Tax Credit for Canadian Residents
Canadians pay taxes worldwide income. Your income from a job in another country, a business or from an investment property. Usually, you pay taxes where you earn your income, too.
So you don’t pay taxes twice, Canada uses a foreign income tax credit to decrease the tax payable in Canada, providing a tax treaty is in place with that country.
A federal foreign tax credit is for Canadian taxpayers who are resident in Canada during the tax year. Then, you disclose where you earned the income, even if it is from more than one country.
Submit a separate foreign tax credit form for each country. Business income and non-business income are submitted on separate forms, too.
The foreign income tax claim equals the lesser of:
- your foreign income tax paid or
- the Canadian income tax you would pay on that income.
If there is a tax treaty with that foreign country, you aren’t eligible for the tax credit. So, check Form T2209, Federal Foreign Tax Credits for more information.