In our world today, it is not surprising to find people having several income sources to complement their primary source of income. These secondary sources of income could be in Canada or outside Canada. If you are generating income outside Canada, there are taxes you must pay to the CRA and the foreign country.
Nonetheless, you can always claim back the taxes paid to another country. This is where the T2209 form comes in. The T2209, also known as the Federal Foreign Tax Credit Form, is a form used to calculate the amount of foreign tax you can deduct from your federal tax in Canada.
If you have a foreign income or a paid business or non-business tax on income you earn in another country, you can receive Federal Foreign Tax Credit. In this piece, you’ll find an overview of form T2209 and how you can claim your Federal Foreign Tax Credit.
What is the T2209 Form?
A T2209 form is used to calculate how much you can subtract from your annual federal tax. It is for taxpayers who have a foreign income and pay income tax on the foreign country’s revenue.
You can claim this extra credit on both business and non-business income taxes, including contributions made to foreign public pension plans. This is applicable If you had to make such contributions by the law in a foreign country.
Note that you may not benefit from them financially because you were employed temporarily and for a short period. The CRA considers any contribution to a foreign public pension plan as a non-business income tax, and they are eligible for the foreign tax credit.
Sections in a T2209 Form
The form features some sections, such as:
- Non-Business Tax Credit
In this section, you will enter your non-business income and the amount of tax you paid to the foreign country. This will help you calculate the total tax credit you can claim on foreign taxes.
- Business Tax Credit
Here, you will need to provide the business income tax you paid to a foreign country. It requires the amounts you enter in the T2203 (provincial and territorial taxes for multiple jurisdictions) and line 42900 of your annual income tax and benefit return. You will also need to calculate the amount of business tax credit you can claim in this section.
- Foreign Tax Credit
Here, you will enter the total amount of foreign tax credit you claim on both non-business tax and business tax. The amount should also be entered on line 40500 of your income tax return and must not exceed the amount you enter on line 42900.
If you pay foreign income tax to more than one country and the total is more than $200, you should calculate each separately and enter the total amount in your form T2209.
Who Should Fill the T2209?
If you pay foreign income tax on non-business income and business income from outside Canada and declare it in your Canadian income tax return, you should fill out the T2209. You can claim back the tax you pay to foreign countries in tax credits.
You can claim either the full amount of tax you pay to the foreign country or the tax you pay to the CRA from the foreign generated income (whichever of the two is lower).
You cannot claim tax on non-taxable income under Canadian tax treaty laws. You can also claim taxes paid on income from foreign properties with the T2209, but the credit cannot be more than 15% of the net income earned from the property.
You can claim contributions made from foreign pension plans regarded as non-business tax credits if you fulfil any of the following two donations;
- You have to be required by law in a foreign country to contribute.
- The CRA must conclude that you can in no way benefit from the contribution if you were temporarily employed in a foreign country.
If you make contributions above the amount required by the foreign country, they will be considered voluntary, and you cannot claim them. However, these tax conditions apply to countries with an existing treaty with Canada. If you work in a foreign country that is not under a tax treaty with Canada, the tax treatment won’t be the same.
How to Get the T2209 Form
You can get the form from the CRA website in the pdf version and print it out. Or you can download the pdf fillable version and send it to the CRA by mail or online through your CRA account.
How to Calculate Your Foreign Tax
You will be charged foreign income tax by the CRA based on your province or territory rates. To calculate your foreign tax, you will first calculate your foreign net income and multiply it by the federal tax rate.
If your tax is lower than the amount you paid to the foreign country, you can claim the exact amount you paid to the CRA. If your tax is higher, your tax credit will be the amount you paid to your foreign country.
To calculate your foreign net income, you will deduct the costs you incurred in generating the revenue from your gross foreign income. If you want to pay tax to the foreign country you work in, you will use the country’s taxing authority’s calculations.
All calculations must be converted to Canadian dollars using the current exchange rate as per the calculation time.
Provincial Foreign Tax Credit
There is a provincial or territorial foreign tax credit that you can claim. If the federal foreign tax credit on non-business income is less than the tax you paid to a foreign country, you can claim a provincial or territorial tax credit using the T2036 form (Provincial Foreign Tax Credit).
Conclusion
A T2209 form is a form that helps you claim tax or contributions you made to a foreign country while you were employed there. It helps you claim back your money if you meet the CRA’s conditions and reduces the amount you have to pay in tax to the CRA as well.
