Do You Need to Declare Income Earned From Sources Beyond Canada?

More Canadians are generating income from sources outside of Canada in today’s global marketplace. Understand your tax reporting responsibilities for income generated from foreign sources.

Canadian Residents

 

The Canadian tax system is based on residency status rather than citizenship. Your residency status might be affected by a variety of circumstances. Although there are no rigid and binding rules, the Canada Revenue Agency has established guidelines. As a Canadian resident, you are taxed on your worldwide income, regardless of where it is generated. This income could come from foreign stocks, rental properties, or business income earned outside the country.

Reporting Income

All income from both foreign and domestic sources must be reported on your personal tax return. Depending on the type of income, such as capital gains, investment income, or rental property, you must report it in the same way you would if it came from within Canada.

 

If the amounts are not in Canadian dollars, they must be converted to Canadian dollars. Use the currency rate set by the Bank of Canada on the day you received the income. If it was received several times during the year, convert it into Canadian dollars using the average annual foreign exchange rate.

 

If you paid withholding taxes to any foreign country on your earnings, you should not reduce your income by that amount. On line 405, you may be entitled to claim a foreign tax credit. These amounts should also be converted from foreign currency to Canadian dollars at the same rates as the income.

Foreign Property Over $100,000

 

Residents of Canada are required to report foreign investments worth more than $100,000 in Canadian currency at any time throughout the year. If you fail to report these, the Canada Revenue Agency may levy fines for failure to report.

 

Foreign property comprises funds and bank accounts, debt securities, shares of foreign corporations (even if held by a Canadian broker), shares held with foreign brokers, real estate, and other tangible and intangible assets located outside of the country.

 

Property for an active business, registered pension fund investments, foreign investments held by Canadian registered funds, and personal properties are not considered foreign property.

 

Capital Gains

If you immigrated to Canada and became a resident, any property you owned or brought with you now becomes part of your cost base. That cost base represents the property’s fair market value at the time you became a resident. When you sell the property, this becomes the cost base for determining the capital gain or loss. Depending on the tax treaty between Canada and the country from where you moved, there may be various exemptions for certain capital property.