Declaring Foreign Income in Canada: Your Tax-Free 10%
Canadian citizens who have incomes from outside the country must navigate a minefield of dense tax code. The rules applying to residents and non-residents are quite different. So, depending on your status, there are various paths you can take.
As a non-resident of Canada, you must file and declare your income earned from Canadian sources. If you have a N4 form for employment income, or have self-employed income or capital gains, you will have to file a Canadian non-resident tax return. If you have Canadian rental income filing of Tax Return Section 216 will be required.
When completing the Canadian Non-Resident Tax Return, you will need to report all Canadian sourced income and report all income earned outside of Canada on Schedule A: “Statement of World Income” filed with your Canadian non-resident tax return. Thereafter, complete Schedule B: “Allowable Amount of Non-Refundable Tax Credits” to calculate if 90 % or more of your income for the year was earned from Canadian sources.
If 90% or more is earned as a non-resident of Canada from Canadian sources, then you will be entitled to your personal exemption. This means you could earn up to $12,069, provided at least 90% of your total income was sourced in Canada. Otherwise, you won’t be able to eligible to earn any tax-free income up to that $12,069 amount plus any of your other non-refundable tax credits that apply. If this amount is less than 90%, you will have reduced non-refundable tax credits to claim being 15% of amounts for the disability tax credit (if applicable), tuition except books, student loan interest and donations.
As a resident, you must declare any income earned outside of Canada on your Canadian tax return. Although it is mandatory to pay these taxes, if you are someone who has already paid tax on this income outside of Canada, you can claim the tax as a foreign tax credit. Because of this, it is recommended that you complete your non-Canadian income tax return before you file in Canada. So, with it being so important to report these incomes properly, you need to make sure you keep records of all your payment documents and copies of your income and tax returns.
If you were an immigrant during the tax year, you will not need to worry about being taxed on your non-Canadian income you earned before becoming a resident. It is still important to report these incomes, because, while there may be no tax, it is still important for properly determining your non-refundable tax credits.
And if you were an emigrant from Canada, you will need to report and pay tax in Canada for all your foreign income earned before the emigration date. After that date, you should not pay tax on any of your non-Canadian income in Canada. It is worth noting that as a non-resident, you may still get some refund for Canada
The above information is of a general nature only and should not be relied upon for specific situations. We do not endorse the accuracy of the charts on the websites above. Click here for additional tax accounting services information.
Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.