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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.


Do I have to declare foreign income in Canada?

Whether you live in Canada or are a deemed resident of Canada who lives in another country, you have to report all of your international income on your return. However, you may be able to claim a credit for any foreign tax you have paid on your income.

How does CRA know about foreign income?

Along with these tax treaties come information-sharing agreements. For example, the CRA in Canada and the IRS in the United States have an agreement where they share earning information for citizens from each other’s countries. This means the CRA likely knows how much income you made from the US and if you underreport or withhold that information, you risk being penalized and paying far more in the long run.

Are offshore accounts illegal in Canada?

An offshore bank refers to a bank located outside of the investor’s country of residence or domicile. It provides banking services mainly for clients who are not physically residing in the country of the bank. Offshore banking in Canada is legal as long as funds are disclosed to the Canadian tax authorities.


Pro Tip


The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.


Sam Faris reduced the significant unreported income based on net worth audit to be nil. Sam’s approach in fighting these types of complex audits is unique and sophisticated. He found countless mistakes made by the auditor which were rectified when Sam appealed the audit decision. Instead of owing significant amount of taxes, Sam reduced it to zero. I highly recommend to hire Sam for this type of audits and any CRA problem.”

E.M., Ottawa