How to Declare Foreign Income on Your Canadian Tax Return

Canadian residents are taxed on their worldwide income. That means income earned abroad is generally taxable on a Canadian return, even if it is also taxed by the country where it was earned.

In addition, some foreign assets must be reported to the Canada Revenue Agency (CRA) even if they do not generate income. Failing to disclose required information can lead to significant penalties. Below is an overview of the key tax and reporting obligations for Canadians with foreign income and assets.

Reporting foreign income on a Canadian tax return

All foreign-source income should be reported on your Canadian tax return. This includes employment and self-employment income, pensions, investment returns and rental income received from abroad.

There are occasional exceptions—for example, certain pensions may be exempt under a tax treaty between Canada and another country—but the general rule is that foreign income is taxable in Canada and must be disclosed.

Report foreign income in Canadian dollars. Convert amounts using the exchange rate on the date the income was received. For practicality, taxpayers often apply an annual average rate when they receive multiple payments in a currency that does not fluctuate materially.

The CRA recommends the Bank of Canada exchange rate, but will accept other reputable sources that are publicly available, verifiable and used consistently from year to year. Examples include rates published by Bloomberg, Thomson Reuters and OANDA.

Claiming foreign tax

Many countries impose taxes on income earned within their borders, so Canadians who earn foreign income may face withholding or income tax abroad and might need to file a foreign tax return.

To avoid double taxation, you can generally claim foreign tax credits on your Canadian return for taxes paid to a foreign jurisdiction. The amount of credit available depends on the tax treaty (if any) between Canada and the foreign country, and on your Canadian taxable income and tax payable.

Disclosing foreign assets

Certain foreign assets must be reported annually, even if they do not produce income. If the total cost of specified foreign property exceeds $100,000 Canadian, you may be required to file Form T1135, the Foreign Income Verification Statement.

Typical items reported on Form T1135 include foreign bank and investment accounts and foreign rental properties, but the form can cover other types of foreign property as well. Note that foreign investments, such as U.S. stocks, must be disclosed even if they are held inside Canadian brokerage accounts. Personal-use foreign property—such as a vacation condo not used for rental—may be excluded in some cases.

The foreign asset reporting rules generally apply to taxable investments. Assets held in registered or tax-exempt accounts—like registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), registered pensions and similar plans—are typically exempt from T1135 reporting.

U.S. persons in Canada

U.S. citizens and green card holders living in Canada usually remain subject to U.S. tax filing obligations. The United States is among the few countries that require citizens and green card holders to file U.S. returns regardless of where they reside. This can require reporting income, deductions, credits and foreign taxes on both Canadian and U.S. returns.

Coordination between the two systems can be complex: some items may be taxable in one country but not the other, and certain deductions or credits may only apply on one return. Professional advice can help ensure both sets of obligations are met.

Voluntary disclosure for previous years

If you failed to report foreign income or neglected to disclose foreign assets in prior years, you may be eligible to apply for the CRA’s voluntary disclosure program. This program can provide relief in specific circumstances when taxpayers come forward voluntarily to correct past returns.

To qualify, you must meet five conditions:

1. You must apply before the CRA has begun any enforcement action against you or a related third party.
2. Your application must include all relevant information and documentation, including the returns and schedules needed to correct the omissions.
3. The matter you are disclosing must involve the potential application of a penalty.
4. The information being disclosed must be at least one year, or one reporting period, past due.
5. You must include payment of the estimated tax owing or request a payment arrangement (subject to CRA approval).

Consider seeking professional advice before submitting a voluntary disclosure. The CRA also offers a pre-disclosure discussion service that is informal, non-binding and can be used without revealing your identity.

Bottom line

If you are a Canadian tax resident—citizen or not—you are generally required to report worldwide income and certain foreign assets on your Canadian tax return. Even Canadians living abroad may remain factual or deemed residents and therefore have ongoing filing obligations.

While credits and treaty provisions often prevent double taxation, most foreign income is still taxable in Canada and must be properly reported.

Learn more about reporting foreign income in Canada

• The tax implications for Canadians selling foreign real estate
  How Canadians are taxed when selling property abroad, whether the sale must be reported on a Canadian return and how tax treaties can affect the outcome.
• Tax planning for Canadians who invest in the U.S.
  Key tax and compliance considerations for Canadians investing in U.S. markets, and how to plan for cross-border tax effects.
• How to report U.S. employment income in Canada
  Guidance for Canadians earning employment income in the U.S., including reporting obligations and claiming foreign tax credits.
• “Where do we pay income tax if we retire abroad?”
  An example of the tax consequences when moving from Canada to another country full time, and what to consider about obligations in both jurisdictions.
• Do non-residents pay tax on CPP? What if you live in the U.S.?
  Explains withholding rules for Canada Pension Plan payments to non-residents and how tax treatment can differ for those living in the United States.
• How to prepare your finances for coming to Canada
  An overview of personal finance considerations for people moving to Canada, including taxes, mortgages and down payments.
• Goodbye, Canada: A guide to departure tax, withholding tax for non-residents
  Covers the tax consequences for Canadians leaving the country temporarily or permanently, including departure tax and withholding rules.
• What is a tax treaty?
  Explains how tax treaties between Canada and other countries can affect investors and cross-border tax obligations.