Key Concepts For Reporting Foreign Income

Canadian resident taxpayers are taxable in Canada on their world-wide income. Foreign-source income may have already been subject to foreign taxes paid. Where this is the case, the taxpayer may be eligible for a deduction or a credit in respect to foreign business and non-business taxes paid. The tax credit or deduction can reduce the tax otherwise payable on that income to Nil, but can never be used to reduce the taxes payable on income NOT from that particular foreign jurisdiction.

Canadian residents are taxed on their worldwide income. What determines residency?

Residency is a question of fact that looks at a taxpayer’s mode of living to determine their economic allegiance. In addition to common-law factors that are considered when making residency determinations, tax treaties and deeming rules in the Income Tax Act have to be considered.

Generally, taxpayers may be resident in Canada for tax purposes if they:

• Have permanent address in Canada;
• Have a close relatives/immediate family in Canada;
• Have Canadian bank accounts and credit cards, Canadian insurance, or a Canadian driver’s license; or
• Make regular visits to Canada to visit immediate family.

No factor is determinative. What the courts are looking for is sufficient social and economic ties to Canada that justifies taxing that person’s world-wide income.