Foreign Tax Credit (Schedule E)

Canadian residents are taxed on their worldwide income, which means income earned both in Canada and abroad must be included on the Canadian tax return. To prevent double taxation—that is, being taxed on the same income by both a foreign country and Canada—taxpayers may be eligible to claim a Foreign Tax Credit (FTC).

Federal Foreign Tax Credit

At the federal level, the Foreign Tax Credit is intended to reduce the Canadian tax otherwise payable on income that has already been taxed by another country. The credit is generally limited to the lesser of:

• The foreign income tax actually paid on the foreign-source income; or
• The Canadian tax payable on that same income.

This calculation is performed on Form T2209 – Federal Foreign Tax Credits. Only income taxes paid to a foreign government qualify (not social security, property, or other types of taxes).

Quebec Foreign Tax Credit

For Quebec residents, a similar credit is available at the provincial level to offset foreign taxes paid on income reported on the Quebec return. The calculation is made using Form TP-772-V – Foreign Tax Credit.

As with the federal credit, the amount of the Quebec foreign tax credit is limited to the lesser of:

• The foreign tax paid; or
• The Quebec tax payable on the same foreign income.

Key Points

• The Foreign Tax Credit prevents double taxation on foreign-source income.
• Separate calculations are required for federal and Quebec returns.
• Only income taxes paid to a foreign government qualify.
• The credit is non-refundable and cannot exceed the Canadian or Quebec tax on the same income.

Example :

Alexandre, a Quebec resident, earned $20,000 in consulting income from the United States in 2024 and paid $2,500 in U.S. income tax. Canadian employment income is $30,000.00. The same income is included on his Canadian and Quebec tax returns.

Answer: The federal foreign tax credit is $1,425.55.
The Quebec foreign tax credit is $1,074.46.