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Do You Need to Declare Income Earned From Sources Beyond Canada?

In today’s global marketplace, more Canadians are earning incomes from sources beyond the borders of Canada. Understand your tax filing obligations for income that you have earned from foreign sources.

Canadian Residents

The Canadian taxation system is based on your residency status, not on your citizenship. There are a number of circumstances that can affect your residency status. There are no strict rules, but the Canada Revenue Agency has established guidelines. As a Canadian resident, you are taxed on your worldwide income, no matter where the income is earned. This income could be from foreign shares, rental properties or business income from outside of the country.

Reporting Income

All income that you have earned from foreign and domestic sources must be declared on your personal tax return. Depending on the type of income such as capital gains, investment or rental property you need to report it the same manner as you would if it was sourced from within Canada.

If the amounts are in a foreign currency, these must be converted to Canadian dollars. Use the Bank of Canada exchange rate that was in effect on the day when you received the income. If it was received a number of times during the year, use the average annual foreign exchange rate to convert into Canadian dollars.

If you have paid withholding taxes to any foreign country on the income you have earned, you should not decrease your income by that amount. You may be able to claim a foreign tax credit on your taxes on line 405. These amounts should also be converted to Canadian dollars from the foreign currency using the same rates as the income.

Foreign Property Over $100,000

Residents of Canada must report foreign investments if the total cost is greater than $100,000 in Canadian currency at any time during the year. If you do not report these, the Canada Revenue Agency could impose penalties for failing to report.

Foreign property includes funds and bank accounts you hold, debt securities, shares of foreign corporations (even if they are held by a Canadian broker), shares held with foreign brokers, real estate, and other tangible and intangible properties located outside of the country.

Foreign property does not include property for an active business, registered pension fund investments, foreign investments held by Canadian registered funds or personal properties.

Capital Gains

If you immigrated to Canada and became a resident, any property that you held or brought with you now forms a cost base when you became a resident. That cost base is its fair market value at the time when you became a resident. This becomes the cost base for calculating the capital gain or loss when you dispose of the property. There could be some exemptions for certain capital property, depending on the tax treaty between Canada and the country from which you emigrated.