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Q & A: Taxation of Foreign Income

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Q. We plan to immigrate to Canada. We want to find out if we have some regular monthly income in our former country and transfer that to Canada while we live in Canada as immigrants and citizens afterwards, do we have to pay any tax for those?

Answer: You have asked as to the taxation of regular monthly income earned in your former country once you have become a Canadian resident. Under Canadian income tax rules, you will be subject to Canadian tax on your world income from the date that you become a Canadian resident. As such, any income earned in your former country, whether the funds are transferred to Canada or not, will be included in your income for tax purposes in Canada for the year.

On this basis, it is possible that you will be subject to tax in both Canada and your country of residence on the same income. To alleviate the possibility of double taxation, Canada will allow a foreign tax credit which will, to some extent, reduce the tax in Canada based on the tax paid in the foreign country. Additionally, it should be noted that, if Canada has an income tax treaty with your former country of residence, it may be possible to reduce the withholding tax rate on the foreign income earned.

The nature of this facility is to provide a general response to a general question. Under no circumstances should anyone act on this information without obtaining analysis and counsel from a qualified advisor with respect to the specific situation.

Phillip Nadler, CA
Richter Usher & Vineberg