Do I Have to Report Foreign Income on my Canadian Tax Return?

By Randall Orser | Personal Finances

When declaring foreign income on your Canadian tax return there are different rules for residents and non-residents.  Non-residents should declare their net income earned outside of Canada in order to claim non-refundable tax credits in Canada. Their foreign income will not be taxed in Canada but it will affect the amount of credits that they can claim.

If you are a Canadian resident and have foreign business income you need to treat it the same way as Canadian business income when filing your Canadian business income tax return.  For both business and personal income you will need to use the Bank of Canada exchange rate on the day that you received the income to convert it into Canadian dollars.  If you live in Canada but work for an American client and receive payment in US dollars you will need to convert that money into Canadian dollars and it will become part of your total income for the year.  

If you have income from a foreign source some of it might be tax exempt due to a tax treaty that Canada has with some other countries (but not all of them).  The CRA will determine how much of your foreign income is exempt based on the type of income that you received, it's country of origin and other factors. You may have to pay additional tax in Canada on the amount that you earned and paid tax on in a foreign country if the tax rate here in Canada is higher than the tax you already paid.  For example if you earned $30,000 in the US and paid $5000 tax on it you would be credited the $5000 but because the tax due on this amount in Canada is $7000 you will have to pay tax on the $2000 difference. 

When you declare foreign income on your tax return you need to indicate the country the funds came from and declare the full amount of any income before foreign taxes were withheld.  You will need to check on the CRA website to see if the type of income you are receiving (such as a pension) is taxable or not according to the terms of the relevant tax treaty.  Be aware that business income, pension and other income even from the same country may be treated differently for various reasons. 

If your foreign income is not subject to a tax reduction or exemption due to a tax treaty you may be able to claim a credit for the foreign taxes that you have paid but you should not reduce the total amount of foreign income by the amount of tax that you paid in the country where you earned it.  

One common example of foreign income is U.S. Social Security Benefits - You may claim a deduction equal to 15% on those benefits.  However if you have continuously received those benefits since 1996 or if you receive benefits from a spouse who resided in Canada from 1996 to his death, you may claim a 50% deduction if you have resided in Canada since your spouse's death.  This will reduce the amount of tax due on this income and if you have been receiving it since 1996 50% is tax exempt and your taxable income will be $5000.

Not declaring foreign income is tax evasion and can result in fines and sometimes even prison.  If you are unsure about declaring foreign income correctly it is advisable to consult a tax professional.


About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.