By TaxNorth Editorial Team
Many newcomers worry about being taxed twice on money they earned before arriving in Canada. Canada has clear rules to protect you — understanding them is important before you file.
Canada taxes your worldwide income starting from the date you become a Canadian tax resident — that is, when you establish significant residential ties to Canada. This date may or may not be your physical arrival date. Income you earned before becoming a Canadian tax resident is generally not taxed by Canada, though you may need to report it for benefit-eligibility calculations.
You do not pay Canadian tax on income earned while living in your home country as a non-resident of Canada. On your first return, you report worldwide income only for the period you were a Canadian tax resident. The CRA may require information about your pre-arrival income to determine eligibility for certain credits and benefits — this reporting is for benefit calculation purposes and is different from reporting taxable income. The appropriate field and form depend on your circumstances.
If you continue to earn income from your home country after becoming a Canadian tax resident, you generally must report it. If your home country also taxes that income, Canada has tax treaties with more than 90 countries to reduce or eliminate double taxation. A foreign tax credit using Form T2209 may allow you to reduce your Canadian tax by the amount paid abroad on the same income, subject to CRA rules and limits. The credit does not necessarily eliminate all double taxation, and treaty provisions may affect the result.
If the total cost amount of your specified foreign property exceeds $100,000 CAD, you must generally report it to the CRA using Form T1135. The threshold is based on cost amount, not current market value. For new residents, the cost amount of foreign property owned before arrival is generally its fair market value when you became a Canadian resident. There is a helpful rule: you do not have to file Form T1135 for the tax year you first become a Canadian resident. This exemption does not eliminate the obligation to report taxable income earned from foreign property, such as rent, interest or dividends.
If you own a home or investments in your home country when you move to Canada, the CRA generally treats the fair market value on your residency start date as your starting cost. Canada only taxes the profit those assets made after you became a resident, not value gained before you arrived.
Do I have to declare bank accounts from my home country? If the total cost amount of your specified foreign property exceeds $100,000 CAD in a year after your first year of residency, you must file T1135. What exchange rate do I use? Convert foreign income to Canadian dollars using the Bank of Canada exchange rate for the day you received the money, or the average annual rate. Will Canada tax the house I still own back home? Ownership alone does not trigger Canadian tax. If you rent it out, you must report the rental income. If you sell it, you may owe tax on value gained since your residency start date.
Foreign income rules can be confusing in your first year. Ask TaxNorth for free, plain-language answers in any language.
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