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Canada and the United States

Foreign Income Reporting

Author: Brad Howland
First Posted: April, 2003

Individuals with residential ties to Canada must report their worldwide income on a Canadian tax return and pay tax on it, even if they live in another country.

Canada is one of the few countries in the world to levy income tax based on residential ties, rather than citizenship. Residential ties include:

For example, take a married couple with one spouse living in Canada with the children while the other lives and works in another country for part of the year. The spouse living abroad should file a Canadian tax return and report the foreign income on it.

Of course, when you declare foreign income on a Canadian tax return you pay tax to Canada. If you also pay tax to the other country, then the problem of "double-taxation" may arise. Canada solves this difficulty by letting you to claim a Foreign Tax Credit on your Canadian tax return for taxes paid to another country. This credit usually covers any excess tax, however, the taxpayer may end up paying more tax overall if the foreign income was earned in a country (such as Taiwan) that has lower tax rates than Canada has. Unfortunately, this can't be helped–it's part of the price of living in Canada.

Related Web Sites

Canada Revenue Agency
Canadian Residents Abroad


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