Key takeaways
- Claim the federal credit on Form T2209 and the provincial credit on Form T2036
- The credit is the lower of foreign tax paid and Canadian tax on the same income
- On foreign interest and dividends, only up to 15% of the income counts; the excess may be deducted
- Convert income and tax at the Bank of Canada rate on the day they arose
- Income from before you became a resident is not taxed in Canada, so no credit is needed for it
How the foreign tax credit works
As a resident, you report your world income in Canada. If a foreign country also taxed some of it, you claim a foreign tax credit. The CRA says that, for each country, you can claim the lesser of:
- the foreign income tax you actually paid, and
- the Canadian tax otherwise payable on your net income from that country.
In practice the Canadian limit is: foreign income ÷ net world income × Canadian tax. You do this twice: on Form T2209 for federal tax, then on Form T2036 for provincial or territorial tax, using the foreign tax left over.
The 15% rule for interest and dividends
For non-business income from property, such as interest and dividends, an individual can count foreign tax only up to 15% of that income for the credit. Tax above 15% may be deducted from income instead (line 23200). Many tax treaties limit withholding on dividends and interest to 15% or less, so check the treaty with your country and ask the foreign payer to apply the treaty rate.
The 15% rule does not apply to foreign rental income from real estate, or to pensions and employment income.
How the calculator counts
- Estimates your 2026 federal and provincial tax on Canadian plus foreign income, using the basic personal amounts and CPP and EI credits on Canadian pay.
- Works out the foreign income’s share of your net income.
- Limits counted foreign tax to 15% of the income for interest and dividends.
- Federal credit = lesser of counted foreign tax and share × federal tax.
- Provincial credit = lesser of the remaining foreign tax and share × provincial tax.
It assumes you were a resident all year, had income from one country, and no business income. Use T2209 and T2036 (or your software) for the real claim.
Worked example
You live in Ontario, earn $60,000 at a job, and receive $10,000 of interest from a bank abroad after you became a resident. The bank withheld $2,500 (25%).
- Only 15% × $10,000 = $1,500 counts for the credit. The other $1,000 may be deducted from income.
- The interest is about 14.4% of your net income. Federal tax is about $7,388, so the federal limit is about $1,064. Federal credit: $1,064.
- The remaining $436 is credited against Ontario tax (limit about 14.4% of Ontario tax).
- Total credit: about $1,500.
To avoid the extra $1,000 being withheld in the first place, ask the foreign bank to apply the treaty rate.
Newcomer tips
- Income from before you became a resident is not taxed in Canada, so foreign tax on it gives no credit.
- Your home country may still tax you as a resident for part of the year. The tie-breaker rules in the treaty decide who taxes first.
- Convert income and tax to Canadian dollars at the Bank of Canada rate on the day each amount arose.
- Income that a treaty makes tax-free in Canada (deducted on line 25600) is left out of the credit.
Read more in taxes for newcomers, check T1135 reporting, and see the India TCS calculator if you send money from India.