If you are a Canadian resident – in general, anyone who has significant social bonds with Canada, or has resided in Canada for more than 183 days in the last tax year is considered a Canadian resident – you need to declare any foreign income you may have earned over the same period. That said, you will not be double-taxed provided that income is sourced from a country, such as the United States, with which Canada has signed a tax treaty. Simply by pounding in the total amount of your gain in your T1, you may qualify for Foreign Tax Credit.
The types of foreign income vary from active ones, such as salary, to passive ones, such as stocks or dividends. If you have invested in U.S. stocks, or have dividends accrued to you from companies registered in the U.S., you will receive 1099 series forms, as equivalent to Canadian T3 and T5 slips. Serving various purposes, this series forms documents your financial assets in the U.S. territories. For example, whereas 1099-INT records the income from interests held in any U.S. bank accounts, 1099-DIV records income from a dividend stock held in the U.S. Both of which should be applied to “Foreign Interest & Dividends” on line 12100 in your T1. 1099-S, on the other hand, refers to non-employment income for services conducted in the U.S., such as capital gains from real estate transactions. Reflecting “Foreign Capital Gains/losses”, this should be applied to line 12700.
“Capital gains” means that 50% of the total amount earned will be added to your other taxable income. If you incur a loss, you can utilize the amount you have lost to offset any gain from the current year or carry it forward indefinitely. Click here for a recap.
Remember to enter “Foreign Taxes Paid” once you have pounded in the numbers in respective lines. You will then be able to find the calculated amount of your Foreign Tax Credit on line 40500. However, if you are not considered a resident of the U.S. by the IRS but have U.S. investments, you will receive the 1042-S form, issued by such financial institutions as banks. In this case, you will find the calculated amount on line 12100 in T1.
Passive income aside, if you have worked in the U.S. and received wages, your employer will issue W2 form, as equivalent to T4, regardless of your residential status. Box 1 “Foreign Employment Income”, and Box 2 “Foreign Taxes Paid” in W2 corresponds to line 10400 and line 40500 in your T1 Canadian tax return.
Please note that while there are still less than two weeks to file your Canadian income tax, the deadline for the U.S. personal income tax return was closed on April 15. Time is running out, and if you need assistance with your other foreign income or assets, give us a call.