Can I reduce my Canadian taxes for foreign taxes paid on foreign employment income?

Question:

I was employed in another country and I had to pay taxes on my wages. Is there any way I can reduce my Canadian taxes with the foreign taxes I paid?

Answer:

For majority of the countries, yes. Canada has tax treaties with over 50 countries around the world with the main objective of minimizing double taxation. As such, you will be able to claim a ‘Foreign Tax Credit’ for the amount of taxes that you paid to another country when filing your Canadian tax return.

Note that:

• You will not be able to claim 100% of the foreign taxes paid. Normally, on your foreign income, you will effectively pay the higher tax rate between the foreign country and Canada.
• You will have to have filed a tax return in the foreign country in order to claim the Foreign Tax Credit in Canada. This is because the CRA does not accept foreign employment income slips (foreign equivalent of Canadian T4 slips) as proof of taxes paid. The CRA would accept foreign tax returns filed as proof.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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