As a Canadian citizen or resident, you are required to pay taxes on your worldwide income, including income earned from foreign sources. However, the taxation of foreign-sourced income can be complex and confusing. In this article, we will discuss the basics of foreign-sourced income taxation in Canada and how it affects you.

What is Foreign-Sourced Income?

Foreign-sourced income refers to income earned from sources outside of Canada. This could include salary or wages earned while working abroad, rental income from a property located outside of Canada, interest earned on a foreign bank account, and capital gains realized on the sale of a foreign asset, among other things.

How is Foreign-Sourced Income Taxed in Canada?

The taxation of foreign-sourced income in Canada depends on a number of factors, including whether you are a resident or a non-resident of Canada, the type of income earned, and the country in which it was earned.

For Canadian residents, foreign-sourced income is generally subject to Canadian income tax, regardless of whether it has been taxed in the country where it was earned. However, if the income has been taxed in another country, you may be eligible for a foreign tax credit, which can be used to offset your Canadian tax liability.

If you are a non-resident of Canada, you will only be subject to Canadian income tax on income earned from Canadian sources. This means that income earned from foreign sources will generally not be subject to Canadian income tax.

It is important to note that there are a number of tax treaties between Canada and other countries that can affect the taxation of foreign-sourced income. These treaties are designed to prevent double taxation and ensure that income is only taxed once, either in Canada or in the country where it was earned.

What are the Reporting Requirements for Foreign-Sourced Income?

As a Canadian citizen or resident, you are required to report your worldwide income on your Canadian income tax return, including any foreign-sourced income earned during the tax year. You will also need to provide details about any foreign tax paid on that income, in order to claim a foreign tax credit.

If you have foreign assets with a total cost of more than $100,000 CAD at any point during the tax year, you may also be required to file a Foreign Income Verification Statement (Form T1135) with the Canada Revenue Agency (CRA).

How Can JTT Accounting Help?

Navigating the complexities of foreign-sourced income taxation can be challenging, but the team at JTT Accounting is here to help. Our experienced professionals can provide expert guidance on tax compliance and planning for individuals with foreign-sourced income, ensuring that you are fully compliant with Canadian tax law and taking advantage of any available tax benefits.

Contact us today to learn more about our services and how we can help you manage your foreign-sourced income tax obligations.