Canada's tax system is based on residency, not citizenship. This means that if you are a resident of Canada for tax purposes — whether you are a Canadian citizen, permanent resident, or even a foreign national living here — you must report your income from every country in the world on your Canadian T1 tax return. This is the worldwide income principle.
What "Worldwide Income" Means for Newcomers
When you become a Canadian tax resident (typically on the day you arrive and establish ties), you begin reporting worldwide income from that date. If you arrived in September, you report:
- All Canadian income for the year
- All foreign income earned from September (your arrival date) through December 31
- Foreign income earned before September is generally not taxable in Canada (unless you were a deemed resident for the full year)
Types of Foreign Income to Report
Foreign Income Categories and Where to Report
- Foreign employment income: Line 10400 — income from working for a foreign employer, even remotely from Canada
- Foreign business income: Reported as business income; may qualify for foreign tax credits
- Foreign rental income: Line 12600 — net rental income from foreign property
- Foreign pension income: Line 11500 — see our foreign pension guide
- Foreign interest income: Line 12100 — interest from foreign bank accounts
- Foreign dividends: Line 12100 — dividends from foreign stocks (note: no dividend tax credit for foreign dividends)
- Foreign capital gains: Schedule 3 — gains from selling foreign property, stocks, real estate
Currency Conversion
All foreign income must be reported in Canadian dollars. You can use:
- The actual exchange rate on the date each amount was received
- The Bank of Canada annual average exchange rate for the year (for small, regular amounts)
- CRA publishes official exchange rates on its website
Foreign Tax Credit — Avoiding Double Taxation
Canada has tax treaties with over 90 countries specifically to prevent double taxation. Even without a treaty, Canada generally allows a foreign tax credit for taxes paid to other countries.
The foreign tax credit (claimed on Form T2209) allows you to reduce your Canadian tax by the amount of foreign tax you paid on the same income. The credit is limited to the Canadian tax payable on that foreign income — it cannot create a refund or reduce tax on Canadian income.
Example: You earn $100 from a foreign source and pay $2,500 in foreign tax. Your Canadian tax on that income would be $3,200. Your foreign tax credit is $2,500, so you only pay $700 additional Canadian tax — not the full $3,200.
Working Remotely in Canada for a Foreign Employer
This is increasingly common and has specific tax implications:
- Your employment income is fully taxable in Canada as you are performing the work from Canada
- Your foreign employer may or may not withhold Canadian taxes — many do not
- You must calculate and remit instalments of Canadian tax quarterly if your employer does not withhold
- Some countries may also want to tax the income (since you work for a company there) — check tax treaty provisions
- CPP contributions may be required even with a foreign employer if you are working from Canada
Foreign Rental Property Income
If you own rental property abroad and continue to receive rental income after moving to Canada, you must report:
- Gross rental income converted to CAD
- Allowable expenses (proportional to Canadian tax principles)
- Net rental income on your T1
- T1135 must be filed if the cost of the foreign property exceeds $100,000 CAD — see our T1135 guide
Foreign Investment Accounts
If you have investment accounts abroad (brokerage accounts, mutual funds, savings plans), the income earned in those accounts is taxable in Canada:
- Interest income: Taxable annually as it accrues
- Dividends: Taxable when received (no dividend tax credit for foreign dividends)
- Capital gains: Taxable when you sell
- Unrealized gains: Not taxable until sold (except on departure from Canada)
PFIC Rules (for US Mutual Funds and ETFs)
Canadian residents who own US mutual funds or ETFs may face an issue called "passive foreign investment company" (PFIC) treatment under US rules if they later become US persons. This is primarily a concern for those who may relocate to the US, or for US citizens living in Canada. The CRA does not have a PFIC regime, but the IRS does — and it can be punitive for Canadians who later move to the US.
Tax Treaties in Action
Tax treaties modify how the worldwide income principle applies. Common treaty provisions that help newcomers:
- Reduced withholding rates on dividends and interest from treaty countries
- Exemption or deferral for certain pension and retirement account income
- Tie-breaker rules when both countries claim you as a resident
- Mutual assistance in tax collection (CRA and foreign tax authorities may share information)