Insta Tax Services

How to avoid double taxation in Canada?

Foreign Tax Credit

Canadian residents for tax purposes or deemed Canadian residents who were present in Canada for 183 days or more in a taxation year are 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 taxation on foreign income. In almost all 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, to avoid double taxation on the same income, a foreign tax credit is available to Canadian taxpayers who have paid foreign income taxes. Taxpayers get the credit for the foreign taxes they paid in the foreign country, reducing their overall tax payable in Canada. By granting a foreign tax credit, double taxation is avoided. If the foreign business income tax credit is not needed in the current year, it can be carried back three years or forward for ten 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 treaties whenever it is favorable to reduce your overall taxes.


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