How foreign income is taxed in Canada
Understand how the CRA treats income earned outside the country, what types of foreign income are taxable, and how to report it correctly
Earning income outside Canada—whether from work, investments, or property—can create tax complexities that many people overlook. Whether you're working abroad temporarily, earning rental income on a property overseas, or holding foreign stocks, Canada’s tax rules follow you, and foreign income must be reported in most cases.
This matters because failure to report foreign income correctly can lead to reassessments, interest charges, and penalties. Understanding what counts as foreign income, how it's taxed, and how to reduce the risk of double taxation is key to staying compliant and making informed financial decisions.
Let’s walk through how the CRA treats foreign income, what needs to be declared, and how to report it properly on your Canadian return.
Canada Taxes Worldwide Income
If you are a resident of Canada for tax purposes, you must report your worldwide income to the CRA. This includes:
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Employment income earned while working abroad
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Rental income from foreign properties
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Dividends, interest, or capital gains from non-Canadian investments
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Pensions or social security payments from foreign governments
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Foreign self-employment or business income
This rule applies whether you are a Canadian citizen, permanent resident, or temporary resident who meets the criteria for tax residency (which includes significant residential ties such as a home or family in Canada).
Tip: Even if the income is already taxed in the foreign country, it must still be reported in Canada. You may be able to claim a credit to avoid double taxation, but non-reporting is not an option.
How Different Types of Foreign Income Are Taxed
| Type of Foreign Income | How It’s Taxed in Canada |
|---|---|
| Employment income abroad | Fully taxable, reported in Canadian dollars |
| Rental income from foreign property | Taxable after deducting eligible expenses; must include gross income and net expenses |
| Foreign dividends and interest | Fully taxable; foreign tax paid may be eligible for a credit |
| Capital gains on foreign assets | 50% of the gain is taxable; must convert cost and proceeds to Canadian dollars |
| Foreign pensions (e.g., U.S. Social Security) | May be partially exempt depending on tax treaties |
| Self-employment abroad | Fully taxable as business income if you're a tax resident of Canada |
How to Report Foreign Income
Foreign income must be reported in Canadian dollars. CRA requires you to:
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Convert foreign income using the Bank of Canada exchange rate—either the rate on the day received or the annual average.
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Declare the gross amount before any foreign tax was withheld.
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Use Form T2209 to claim a foreign tax credit for taxes paid to another country.
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Complete Form T1135 (Foreign Income Verification Statement) if your foreign property holdings exceeded $100,000 CAD at any point in the year.
Important: You must use accurate exchange rates and maintain documentation to support each conversion. Failing to report income or misreporting conversions can lead to penalties or delayed refunds.
How to Avoid Double Taxation
Canada has tax treaties with many countries to prevent you from paying tax twice on the same income. These treaties allow for:
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A foreign tax credit on your Canadian return
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Full or partial exemptions for certain types of income
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Clarification of tax residency when dual residency might apply
If no tax treaty exists, you may still claim a foreign tax credit, but it might be limited. Always keep records of foreign taxes paid and consult a tax advisor if you’ve paid tax abroad.