In these global, interconnected times, it's not unusual for people to have a secondary source of income from a country outside of Canada. But if you generate income outside of Canada, you must still pay taxes to the CRA on that income. You can, however, be credited for the taxes paid to the other country where the income was earned, and Form T2209 is the CRA's way of helping you do just that.
What is a T2209 form?
The T2209, Federal Foreign Tax Credits form, is designed for taxpayers who earned foreign income and who paid income tax (for that income) to the foreign country where it was earned. So that you aren’t paying tax twice on the same income, you can claim a tax credit for the amount of tax already paid to the foreign country. The T2209 is how you calculate that credit. CRA allows taxpayers to claim a Foreign Tax Credit (FTC) on both foreign business and foreign non-business income tax. Form T2209 features various sections as follows:
Non-Business Tax Credit
The federal non-business tax credit section is precisely what the name suggests. This is where you enter non-business income earned in the foreign country and tax paid to the foreign country to calculate the tax credit on foreign non-business income you can claim.
Business Tax Credit
The federal foreign business tax credit section is where you enter the business income tax paid to a foreign country. This section requires amounts from Part 2 of the T2203 (Provincial and Territorial Taxes for Multiple Jurisdictions Form) and line 42900 of your income tax return. It features calculations for determining the tax credit on foreign business income you can claim.
Foreign Tax Credit
This is the last section and features only one line (12) where you enter the total amount of foreign tax credit you are claiming on the countries specified at the top of the slip. It is an addition of the non-business tax credit and business tax credit. The total federal foreign tax credit calculated on T2209 should be entered on line 40500 of your income return and must not exceed the amount listed on line 42900.
If you paid foreign income taxes to more than one country other than Canada, and the total exceeds $200, you should calculate each separately and include the total in form T2209.
Who should fill out a T2209?
Form T2209 is for anyone who paid foreign income taxes on income from outside Canada. Essentially, if you earn income outside Canada, the CRA expects you to declare the income on your return and it can be taxed if it meets a given threshold. According to their legislature, foreign countries also impose taxes on income made by citizens from other countries, so you may have to pay taxes to a foreign country.
The CRA only allows claiming of a foreign tax credit on taxes paid to countries that have an existing tax treaty with Canada.
Anyone who has run a business in a foreign country, earned income from that business and paid tax on that income should use the T2209.
Anyone who had foreign income tax paid on income not earned from running a business should use the T2209 and can claim it as non-business income tax. Contributions made to foreign pension plans can also be claimed, grouped under the non-business income category. To be able to claim this pension plan income, you must meet two distinct conditions. The first is that you must be required by the legislation of the foreign country to make these pension contributions. Secondly, the CRA must come to a reasonable conclusion that there's no way you will benefit from these contributions, given your employment in the foreign country was temporary and for a short period of time.
There are some things to keep in mind if claiming the foreign tax credit:
If you reported foreign income on your return that is tax-free in Canada because of a tax treaty and claimed a deduction for this income on line 25600, this income cannot be included in your foreign non-business or foreign business income for the tax credit calculation on T2209.
Any amount of tax paid above the amounts required by the foreign country is considered voluntary and cannot be claimed.
Taxes paid on income from foreign property can be claimed on T2209, but the foreign tax credit cannot be more than 15% of the net income earned from the property.
