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The Foreign Tax Credit

The foreign tax credit for non-business income is a non-refundable tax credit and is available if you have income from foreign investments that have been subject to foreign withholding taxes.

There are actually two different foreign tax credits in Canada: The foreign non-business tax credit and foreign tax credit on business income. This article only addresses the foreign tax credit on non-business income.

The Foreign Tax Credit Is Not Simple

Although the basic concept of the foreign tax credit is to eliminate double taxation, the calculation of the credit is not straight forward and has limits on how much may be claimed as a credit. Further complicating the matter is the fact that the excess amount you cannot claim as a credit may be claimed as a deduction (which may mean re-calculating your total tax return again!).

Further complicating matters is the fact that the foreign tax credit must be calculated for each country unless the total foreign taxes are less than $200.

Side Note About Tax Software

Be aware that if you have income from foreign investments, your income tax software may not properly calculate the foreign tax credit for you. If you have to calculate separate foreign tax credit for each country, you will no longer be allowed to file on-line and you will have to mail in your tax return.