Whether you have to declare foreign income varies depending on the tax treaty between Canada and the country where your income originates. Canada currently has tax treaties with nearly 100 different countries.
Residents of Canada
For tax purposes, to be considered a Canadian resident, you have to have significant residential ties to Canada. As a resident, you will have to report all sources of income (income from Canada and foreign income) on your tax return. New immigrants are considered residents for tax purposes from the date they enter the country.
Deemed Residents of Canada
In other cases, you may live outside of Canada but be considered a deemed resident. For example; government employees, members of the Canadian Forces and certain missionaries are considered deemed residents, even if they spend the entire year outside of the country. Additionally, people who spend more than 183 days in Canada during the tax year are also considered deemed residents, even if they have no residential ties to Canada.
As a deemed resident, you are required to report all of your international income and Canadian income on your income tax return. However, you may qualify for certain credits or exemptions.
Non-Residents of Canada
If you live in another country and do not have significant residential ties to Canada, you are likely considered a non-resident for tax purposes.
As a general rule, if you visit Canada, you are usually considered a non-resident as long as you spend less than 183 days in Canada per year.
As a non-resident, you do not have to report foreign income to the CRA and only have to file an income tax return in Canada if you have Canadian income such as pension payments or capital gains due to property disposal.
Deemed Non-Residents of Canada
If you have residential ties in two countries and you travel frequently between both of them, you might be deemed non-resident of Canada based on the tax treaty with the other countries. You have to apply the tie-breaker rule to determine your status.
Foreign Income Tax Credit
Whether you live in Canada or are a deemed resident of Canada who lives in another country, you have to report all of your international income on your return.
However, you may be able to claim a credit for any foreign tax you have paid on your income. When completing your income tax return, convert your foreign income and tax to Canadian currency using the exchange rate published by the Bank of Canada.
To calculate the amount of your credit, complete Form T2209, Federal Foreign Tax Credits. Then, claim your credit on line 40500 of your income tax return.
Exempt Foreign Income
Besides claiming an exemption of tax you paid, you may be eligible for an exemption on the foreign income you report. For example; if you receive U.S. Social Security payments, you can claim a deduction equal to 15 percent of your payments. If you receive child support payments, you can typically claim an exemption on all of them. If you qualify for an exemption, you need to claim it on line 25600 of your income tax return.
Furthermore
It’s important to understand that the CRA has a number of different tax treaties and reporting requirements vary based on where your income originates. To understand how your income is classified, you may need to contact the International Tax Services Office.
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