Do you receive any income from another country?
Below are the key points to know if you must declare foreign income in Canada. If you live or work in Canada and have any of the following types of foreign income, you must report it on your tax return in the year you receive the income.
Tax Resident in Canada:
The CRA has specific rules on determining the tax residency if you live in a foreign country.
Ask yourself the following questions:
If you fulfill any of the above conditions, you will need to file a tax return declaring all of your foreign income.
Canadian residents must report all income received, including those made outside of Canada. Foreign income, however, is treated differently, depending on the type of income for every different country.
Foreign Employment Income
Canadian residents employed and paid by a foreign organization must report the amounts paid under Other Employment Income on Line 10400. Foreign taxes paid can also be reported to offset taxes payable. Taxpayers should have supporting documents that prove the amounts received and paid. All quantities reported should be in Canadian dollars.
Foreign Interest and Dividends
Interest and dividends received from foreign corporations have to be reported in a Canadian resident's income taxes. Foreign tax credits may be claimed if tax was withheld from the foreign interest or dividend. Amounts reported on the tax return must be in Canadian dollars.
Foreign Pensions
Generally, pensions must be reported and are fully taxable in Canada. All foreign pension amounts are converted and reported in Canadian dollars. There are exceptions where foreign pensions can be excluded or tax-exempt due to various tax treaties. Reporting the amount of taxes paid to the source country should be supported with documents to claim respective foreign income credits.
If income is taxable both in Canada and the source country, income is reported on Line 11500 and is eligible for pension credit. In addition, foreign tax credits may also be claimed, up to the maximum rate stated in the treaty between Canada and the source country.
If income is taxable in Canada but exempt from tax in the source country, income is reported on Line 11500 and is eligible for pension credit. However, it is ineligible for the foreign tax credit.
If income is partially or fully exempt in Canada but taxable in the source country, portions of the income are reported on Line 11500. Deductible portions are reported on Line 25600 to reduce taxable income.
Special Treatments for Specific Pensions
Particular types of pensions from the U.S., Italy, Austria, Germany, and Belgium are treated differently. Therefore, sometimes the equivalent to the Notice of Assessment from the source country is needed.
For example, the U.S. Social Security Benefits are fully exempt from the U.S. and only partially taxable in Canada. Another example is the Italian Social Security Pensions, which are made up of 3 parts and are all treated differently when calculating Canadian taxes.
Some pensions are excluded and not reported on Canadian taxes at all. These include foreign pensions paid for disability or death due to war or military service if the foreign country was a Canadian ally.
Foreign Rental Investment income
If you own a property in a foreign country and earn a rental income, you must report these in your Canadian taxes. You must report the gross rental income and can deduct related expenses, resulting in only the net rental income being taxable. However, if the rental income is earned in a foreign country, it may be taxable in that country too.
Foreign Property
If you own a foreign property that costs $100,000 CAD or more at any time of the year, form T1135 must be filed to the CRA. Examples of foreign property include funds in bank accounts outside of Canada, interest in a non-resident trust, shares in non-resident corporations, real estate located outside of Canada, and other income-earning foreign property. Personal-use property and assets used in an active business are not required to be filed in form T1135.
At Softron we can help you know what to do, when foreign income comes home to you!
Posted on 02 Dec 2021