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 Canada Revenue Agency (CRA) on that income.
You can, however, be credited for the taxes paid to the other country where the income was earned. 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, lets taxpayers who earned foreign income and paid income tax on it to a foreign country claim a credit, so they aren't taxed twice on the same income. It is the form you use to calculate that Federal Foreign Tax Credit (FTC).
The CRA allows taxpayers to claim an FTC on both foreign business and foreign non-business income tax. Form T2209 has three main sections, described below.
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 there to calculate the credit you can claim on foreign non-business income.
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 credit on foreign business income you can claim.
Foreign tax credit
This final section brings together your non-business and business tax credits to arrive at your total FTC on the countries specified at the top of the slip.
The total FTC calculated on the T2209 should be entered on line 40500 of your income tax return and must not exceed the amount listed on line 42900. If your total foreign taxes paid to all foreign countries was more than $200, calculate the foreign taxes for each country separately and enter the total on Form T2209.
Who should fill out a T2209?
Form T2209 is for anyone who paid foreign income taxes on income from outside Canada. If you earn income outside Canada, the CRA expects you to declare it on your return, and it can be taxed if it meets a given threshold. Foreign countries also impose taxes on income earned by citizens of other countries, so you may have to pay tax to a foreign country as well.
Whether the other country has a tax treaty with Canada may affect your eligibility for the credit.
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 claim this pension plan income, you must meet two distinct conditions. First, you must be required by the legislation of the foreign country to make these pension contributions. Second, the CRA must reasonably conclude that you will not benefit from these contributions, given that your employment in the foreign country was temporary and for a short period.
There are some things to keep in mind if claiming the FTC:
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 the 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 (other than real or immovable property) can be claimed on the T2209, but the FTC cannot be more than 15% of the net income earned from the property. Any foreign tax you paid above that 15% may instead be deductible on line 23200.
How much can you claim with the T2209?
The FTC isn't simply the full amount of tax you paid abroad. For each foreign country, you can generally claim whichever of these two amounts is lower:
the foreign income tax you actually paid on that income
the Canadian tax that would otherwise be payable on your net income from that country
This "lesser-of" rule keeps the credit tied to what Canada would have taxed, so it offsets double taxation without refunding more than your Canadian liability.
Before you can run the numbers, both your foreign income and the foreign tax paid must be converted to Canadian dollars. Use the Bank of Canada exchange rate in effect when the income was received. If you were paid throughout the year, such as a monthly pension, you can use the average annual rate instead.
How to fill out and claim the T2209
Filing the T2209 is part of your regular income tax return. At a high level, the process looks like this:
Gather your records: proof of the foreign income you earned, proof of the tax you paid abroad, and the exchange rate you used to convert both amounts to Canadian dollars.
Complete the non-business and business tax credit sections that apply to you, calculating the credit separately for each country.
Total up your credit on the form, then enter that total on line 40500 of your income tax return.
The T2209 only covers the federal foreign tax credit. To claim a provincial or territorial credit, you'll need a separate form — the T2036 if you lived outside Quebec, or a claim through Revenu Québec if you're a Quebec resident. Keep every supporting document, since the CRA may ask you to verify the foreign income and taxes behind your claim.
