Canada has many tax treaty's with many other countries especially with the United States. If you have made money outside of Canada it is very important that you claim that income on your tax return. The Canada Revenue Agency is very good at receiving reports of income made outside of the country. In addition, if the amount is 10% and under of total income you will be able to qualify for the basic personal amount of $13,808 (2021). This amount is a deduction against income when you file your tax return. Our article will go over the details of how much foreign income tax is tax-free in Canada. As well as, other ways to help you save more money on your next tax return.
How Much Foreign Income Tax Is Tax-free in Canada?
This is a very important question as many Canadians and Americans alike are getting ready to file taxes this upcoming tax season. In general the rule from The Canada Revenue Agency is that your income must not exceed more than 10% of your total income coming from a foreign source. Of course you are allowed to make more money outside of Canada, but in order to qualify for the Basic Personal Amount of $13,808 (2021) your foreign income must be lower than 10% of your total income. Why is the basic personal amount important? The reason being is that this amount will be a deduction on your taxes. $13,808 will deduct from your total income where you do not have to pay taxes on this amount. That is a great credit the CRA gives to Canadian Filers. So it is important to try and stay under the amount. If you have made over this amount, then there are other areas we can help to reduce tax below.
The Canada / US Tax Treaty
Canada and the US have a had a great economic relationship over the years. Many citizens receive jobs on both sides of the border and have brought in a lot of income over the years. Having a tax treaty between two great countries is essential in helping one another avoid being double taxed. Both governments feel that both citizens should only be taxed in certain circumstances. Circumstances such as the amount you made in one of the countries based on a specific time frame. If you are a Canadian Citizen that made money in the US, you will be able to report your foreign income on your tax return as well as take into account the amount of tax you paid for that income. This will help offset the amount you earned. These are called foreign income tax credits.
These can be applied to:
- US Income from pensions, annuities, social security, etc
- Self Employment Income for whom own US Companies
- General Income Earned in the United States
Social Security has a better deduction as you can claim 15% of the benefits you report under the Foreign Pensions line. One small note: If you received Social Security since 1996 and you reside in Canada, you can claim a deduction of 50%. This is a huge benefit for many American's coming to live in Canada.
How Do I Declare My Foreign Income As Tax-Free?
In order to have some or all of your foreign income exempt, you will need to report this income on line 25600 (formerly line 256) on your tax return. Depending on the amount you have claimed you will be able to find out if all your foreign income or part foreign income will be Tax-free. Receiving a tax deduction depends of course on the updated tax treaty between Canada and The United States, so always check to make sure that the tax deductions are still there. There are different types of income that can be taxed differently depending on what you made.
- Dividends, Investments, Interest
- Pension, Annuities
- Self Employment Income
- Dividend from Corporations
It is always best to check with your Professional Accountant. For any questions related to these topics please do not hesitate to contact Accufile at our email [email protected] or talk to the chat below for more information.
Are There Tax Treaties With Other Countries?
Yes for sure there are many tax treaties with other countries as well. Many of the European countries as well as the UK, Ireland have many workers come to Canada. India and China as well. There are many treaties and many tax benefits that one can find in order to reduce their taxes when filing in Canada. There are different rules and different tax laws depending on the income you earn.
Filing With Accufile | Using Our Free Tax Tips
Anytime you have a question please feel free to contact Accufile. We are here to help make your tax experience easier and help reduce taxes owing. Contact us at anytime during the year through email, phone and or chat on our website. Accufile file offers Personal Tax Returns for $25, Self Employment Tax Returns for $75, and Corporate Tax Returns for $200. If you have any questions regarding the article above please contact us.