Canadian taxes - paying taxes on international income??

Question

Hi,

I'll keep it brief:

I'm a Canadian citizen and a British Citizen. I reside in Canada normally but lived in the UK for six months in 2007, the entire amount of time was spent working and earning income.

Doing my 2007 taxes now (yes, I'm late, boo to me) and I can't for the life of me figure out if I pay CDN taxes on that or not. There are references to tax treaties with the UK but nowhere on the CRA website does it say what this treaty actually is or how it affects me.

I'm looking at the CRA foreign tax credit form and can't completely tell what I'm looking at here.

Anyone a)know about this tax treating? b)know what the procedure is for reporting international earnings? c)know if I have to pay tax on it?

Thank you so much!!!

Answer 1

Here is a link to the Canada-UK tax treaty. BTW, this treaty only coveres England, Scotland, Wales and Northern Ireland. None of the other countries of the United Kingdom are covered by this treaty:

http://www.fin.gc.ca/treaties/UK_e.html

There are three articles of the treaty that are going to be applicable to your situation. Articles 4, 15, and 21.

Arrticle 4 has to do with your residency, and states that the country of your residency is the one that will tax you.

Article 15 has to do with employment income, although it's called something different in the article itself. What that one says is that work performed in one country can be taxed in that country. This is the one that allowed Inland Revenue to have deductions from your pay while you worked in Britain.

Article 21 is the one that's really important. This is the elimination of double taxation. This one allows you, as a Canadian resident, to claim credits on your Canadian return in respect of the British taxes you have paid.

Here's what you do on your Canadian return.

Report your foreign earnings at line 104 of your return in Canadian dollars. Add this amount to the other taxable sources of income you may have.

When calculating the Federal tax, you need a copy of for T2209. Link here:

http://www.cra-arc.gc.ca/E/pbg/tf/t2209/...

Read the form carefully. In the situation you have described, you should only be concerned with lines 1, 2, and 3. If the amount on line 3 is LESS than the amount on line 1, you may also be entitled to a Provincial Foreign tax credit, in which case, you will also need form T2036:

http://www.cra-arc.gc.ca/E/pbg/tf/t2036/...

Hope this all helps you.

Answer 2

If you "reside in Canada normally", you are a cdn resident for tax purposes (unless you cut off all your cdn ties when you left canada to UK for work in 2007 and you are still in UK).  Being a cdn resident requires you to report your world income, within and outside canada including your income earned in UK.

You include your UK income in your cdn tax return, and claim the cdn foreign tax credit for the UK taxes you paid, if any.  

The Canada-UK tax treaty, particularly article 4, says which country - cda or UK - has the right to tax you based on your residency.  The tie breaker rules focus on your home, economic and social ties in each country as factors of being a resident and thus subject to the local taxation.  For example, if you had a home or apartment in UK but maintaining no home or apartment in canada, you would be deemed to be a UK resident subject to UK taxes.  And, if you maintain a home in both countries, your economic and social ties will dictate whether you are a UK or cdn resident.  As said, even if UK taxed you, and that you are now back in canada, you just report your UK income in your 2007 cdn tax return, and claim the foreign tax credit for the UK taxes paid.