Certain foreign income and taxes paid on income received from a foreign country may be claimed as a tax credit if you have included them in your income tax and benefit return for the tax year.
When you file your tax return, you will need the T2209 form to determine this foreign tax credit.
What Is the T2209?
The T2209 is the Federal Foreign Tax Credit form that refers to foreign income tax credits that you can claim if you have earned income from a country other than Canada, and have paid foreign income tax on an amount that you have reported when filing your Canadian taxes.
If the foreign country where you have earned foreign income from or paid income taxes to has a treaty with Canada, this may impact your eligibility for a foreign tax credit.
Generally, in a situation whereby you have earned income from multiple foreign countries and paid the applicable taxes to a sum of more than two hundred dollars ($200), then you will need to calculate the foreign income tax credit for each separate country and include the total sum in your T2209.
Also, the foreign tax credit you may be able to claim for the separate foreign countries is the lower of the actual foreign income tax you paid and the tax that is considered payable in Canada on the foreign income earned.
When you fill and submit the T2209 form, any foreign income and tax reported needs to be converted to Canadian dollars using the Bank of Canada exchange rate.
This rate can be applied as per the rate on the specific date of when you received these amounts, or using the average annual exchange rate if you received multiple payments or a monthly pension payment.
The average monthly and daily rates are available by visiting the Bank of Canada website.
Additionally, when you provide supporting documents that are in a foreign language, you will need to provide the Canada Revenue Agency (CRA) with an acceptable English or French translation along with a copy of the foreign-language written original documents.
When is the T2209 Required?
The T2209 is used to claim tax credits on non-business and business foreign income received from, or taxes paid, to countries other than Canada.
When you have reported the foreign income and taxes on your tax return, you can request a tax credit especially in an instance where Canada has a tax treaty with the foreign country where you received the income or paid the taxes.
Net Foreign Business Income and Tax Paid to a Foreign Country
The foreign business income tax is the tax paid on your net business income from a foreign country.
Your net foreign business income should only include what you earned as business income from the foreign country while you were a resident of Canada.
The net foreign business income is the excess of your foreign business income over any business losses incurred in another country.
You will need to claim any allowable expenses and deductions for your net foreign income, and also apply any adjustments based on tax treaties that exist between Canada and the foreign country.
Net Foreign Non-Business Income and Tax Paid to a Foreign Country
Similar to the net foreign business income, the foreign non-business income tax is the income tax paid on your net foreign non-business income from another country that is not Canada while you were a resident of Canada.
The net foreign non-business income is the excess of your foreign non-business income over any non-business losses incurred in another country.
The allowable expenses and deductions that you can claim on your net foreign income may include:
- income received from the foreign country for which a capital gains deduction was claimed,
- income that was deductible as exempt from tax in Canada or the foreign country based on an existing tax treaty between Canada and the foreign country,
- certain foreign exploration and development expenses,
- deduction claims relating to foreign union dues, foreign carrying charges, or contributions to a foreign pension plan.
T2209 vs T2036: What’s The Difference?
The T2209 is used to claim foreign business and non-business income tax credit while the T2036, Provincial or Territorial Foreign Tax Credit form is used to calculate the foreign non-business income tax credit that can be deducted from your provincial or territorial income tax.
If the federal foreign tax credit you have on non-business income is lower than what you have paid in taxes to a foreign country, you may be able to claim a provincial or territorial foreign tax credit using the Form T2036, Provincial or Territorial Foreign Tax Credit.
Frequently Asked Questions
- What is CRA Form T2209?
The T2209 form is used to claim foreign tax credits on income earned or taxes paid to a foreign country if you have reported this income in your Canada tax return.
- How much foreign tax credit can I claim?
The maximum amount you can claim for a foreign tax credit is the lesser of the applicable foreign income or profits tax you paid for the year and the tax that is payable to the Canada Revenue Agency regarding the applicable foreign income.