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Can you carry forward unused foreign tax credits

Understand what happens if your foreign tax credits exceed your Canadian tax owing—and how to preserve the benefit for future years

When you pay income tax to another country and report that income in Canada, the CRA may allow you to claim a foreign tax credit to avoid paying tax twice. But what happens when the credit is larger than your Canadian tax liability on that income?

In those cases, the unused portion of the credit may be carried forward to future years, provided it meets the CRA’s eligibility rules.

This matters if you have inconsistent income, large one-time capital gains, or if foreign tax rates are higher than Canadian rates. Understanding carry forward rules helps ensure you don’t lose the benefit of taxes already paid abroad.

What Is an Unused Foreign Tax Credit?

An unused foreign tax credit occurs when:

  • The foreign income tax paid exceeds the amount of Canadian tax otherwise payable on the same income.

  • You are eligible to claim the credit, but cannot use the full amount in the current tax year because of income level or tax liability limits.

Example:
If you earned $15,000 in foreign dividends, paid $3,000 in foreign withholding tax, but only owed $2,200 in Canadian tax on that income, the $800 difference is considered unused. You may carry it forward to use in a future year when your Canadian tax on similar income is higher.

Federal Carryforward Rules (Form T2209)

The CRA allows unused foreign tax credits to be carried forward for up to 10 years under Form T2209.

To qualify and apply the credit:

  • File Form T2209 in the year you originally paid the foreign tax. This establishes the CRA’s record of the credit’s origin.

  • Track each carryforward amount by year, keeping a separate record for every tax year’s unused portion. You’ll need this for future filings.

  • Apply carried-forward credits in a future year when:

    • You have Canadian tax payable on similar foreign income, and

    • You didn’t fully use your available credits in the current year.

Tip: Maintain a simple spreadsheet listing the tax year, original amount of unused credit, remaining balance, and expiry year. This avoids missed opportunities or expired credits.

Quebec Carryforward Rules (Form TP-772-V)

For Quebec residents, foreign tax credits can also be carried forward for 10 years on the provincial side using Form TP-772-V.

To carry forward at the provincial level:

  • Ensure the income was reported on your Quebec tax return in the year you originally earned it.

  • Track unused credits separately from your federal amounts, as Quebec and federal carryforwards are applied independently.

  • Apply the carryforward only to foreign income still subject to Quebec tax in a future year.

If you move provinces or no longer pay Quebec income tax, unused provincial credits cannot be transferred or repurposed.

When Carryforwards Are Most Useful

Situations where unused credits are commonly carried forward:

  • Fluctuating income years
    You have low Canadian tax payable in the current year but expect higher income and tax liability in coming years.

  • High foreign withholding tax
    You receive dividends from countries like the U.S. where withholding tax is 15 to 30 percent—sometimes more than your Canadian tax rate.

  • Lump-sum foreign gains
    You sell foreign property or securities and pay tax abroad. If your Canadian tax on that gain is low or zero due to other deductions, the foreign tax credit becomes unusable in that year.

  • Retirement income from abroad
    You begin receiving foreign pension income, such as U.S. Social Security or U.K. State Pension, which is taxed differently in Canada. Some of the foreign tax may not be usable until future years.

Credits Can Expire

The CRA allows foreign tax credit carryforwards for 10 years, after which the unused amount expires permanently. There is no option to carry them back to earlier years.

To protect your credits:

  • Apply the oldest credits first when multiple years of carryforwards are available. This avoids wasting earlier amounts.

  • Review your credits annually when preparing your return to see if any will expire soon.

  • Keep all foreign tax receipts, forms, and currency conversion records, as CRA may request documentation if you apply carried-forward amounts several years after the original claim.