Foreign Tax Credit

Canadian resident for tax purposes or deemed Canadian residents who were present in Canada for 183 days or more in a taxation year is taxed on their worldwide income. So, they have to report their foreign income on their tax return in Canada and may be subject to double tax on foreign income. In almost all the countries except some places in the middle east, there are taxes on income generated by anyone. So, foreign income may have been subject to foreign taxes, accordingly, in order to avoid double taxation on the same income, a foreign tax credit is available to Canadian taxpayers who have paid foreign income taxes. Taxpayer gets the credit for the foreign taxes they paid in the foreign country and it reduces their overall tax payable in Canada. By granting a foreign tax credit, double taxation is avoided. Foreign business income tax credit if not needed in the current year then it can be carried back 3 years or carried forward for 10 years.




Tax Treaties

The Canadian government has signed tax treaties with several countries to avoid double taxation. Treaties are very specific to a particular country. So, use the provisions of the tax treaty whenever it is favourable to reduce overall taxes.