Tax credit on your foreign business income (T2209 & TP-772-V)

If you earned foreign business income from a business located outside of Canada and/or paid tax on this income to a foreign government, you can avoid paying full tax to both Canada and the source country by claiming the foreign tax credit (provided Canada has a tax treaty with this country).

To claim this tax credit, you must also have been a resident of Canada on:

  • December 31 of the current tax year
  • The last day of your residence in Canada (if you stopped living in Canada during the tax year) or
  • The date on which you passed away

Your tax payment qualifies for the tax credit if:

  • The payment was made to the government of a foreign country or to the government of a state, province or other political subdivision of a foreign country
  • It isn’t conditional on the availability of a foreign tax credit in Canada or a deduction for a dividend received from a foreign affiliate and
  • It is an income or profits tax

Generally, the foreign tax credit you can claim for each foreign country is the lower of the following amounts:

  • The foreign income tax you actually paid or
  • The tax otherwise due in Canada on your net income from that country

Note:

  • Be sure to keep all your supporting documents in case the Canada Revenue Agency (CRA) or Revenu Québec asks to see them. If you paid foreign income tax in the U.S., you’ll want to retain a copy of your W-2 information slip, your Form 1040 from the Internal Revenue Service (IRS), and any other documents supporting your claim.
  • If you paid foreign business income tax to more than three countries, you won’t be able to NETFILE your return. Instead, you’ll need to print and mail-in the paper version of your return to the CRA and/or Revenu Québec.

Yes. Before entering these amounts into your return, you’ll need to convert both the foreign income you earned and the foreign income tax you paid into Canadian dollars. You can use the exchange rate posted by the Bank of Canada that was in effect on the day that you received these amounts.

Apart from completing the Foreign business income (T2209 & TP-772) page in H&R Block’s tax software, you’ll also need to report your foreign business income for the year as self-employment income on your return. Based on the type of foreign business income you had, you’ll need to complete one of the following pages:

  • T2125: Statement of business or professional activities (or T2125 & TP-80-V, if you’re a Québec resident), if you had income from a business or profession and related expenses
  • T2042: Statement of farming activities, if you had income from foreign farming activities
  • T2121: Statement of fishing activities, if you had income from foreign fishing activities

To complete one of the above self-employment pages, follow these steps:

  1. On the left navigation menu, under the Credits & deductions tab, click Tax Topics.

  2. Select the Self-employment income & expenses checkbox.


  3. At the bottom of the page, click Add selected topics to my return.

  4. Click the Employment tab on the left navigation menu.

  1. Under the BUSINESS AND SELF-EMPLOYMENT INCOME heading, select the page you want to complete and click Continue.

  2. When you arrive at the selected page (T2125, T2125/TP-80-V, T2042, or T2121), enter your information into the tax software.

Yes. Any foreign business income that falls into one of the following categories doesn’t qualify for this tax credit:

  • Foreign business income that’s tax-exempt in Québec or in Canada under a tax agreement
  • Foreign business income that’s tax-exempt from foreign income tax or
  • Foreign business income that’s been allocated to a beneficiary (like a trust)

If you paid tax on foreign business income, the portion of the tax that can’t be deducted as a foreign tax credit might qualify as an unused foreign tax credit. You can carry forward your unused foreign tax credit up to 10 years from the year in which you received your foreign business income (for tax years ending after March 22, 2004), or carry it back 3 years.

To determine the amount of your unused foreign tax credits available for use on your 2023 return, refer to your previous tax return(s) and use the following formula to calculate the amount:

(Line 12 of form T2209) – (Line 405 on Schedule 1) = Unused foreign tax credit

Example: If on your 2022 return, your federal foreign tax credit (line 12 of form T2209) is $5,000 and the amount that transferred to line 405 on Schedule 1 was $3,000. Using the formula above, your unused federal foreign tax credit for that year is $2,000.

Similarly, if you’re a resident of Québec , you can also carry forward your unused foreign tax credit up to 10 years from the year in which you received it or carry it back 3 years. You can find your unused credit amount on line 95 of your TP-772-V form from previous years.

Note: To complete the Foreign business income page, you’ll need to add line 95 from your TP-772-V form for each of the previous 10 years. You’ll also need to indicate how much of this amount has been claimed on previous tax returns.

Canada has tax treaties in place with many countries to avoid double taxation and to prevent tax evasion. Tax treaties are agreements with other countries that:

  • define which taxes are covered and who is a resident and eligible to the benefits of that country
  • define when the income of individuals resident in one country will be taxed in the other country, including salary, self-employment, pension, and other income
  • often reduce the amounts of tax to be withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country
  • might provide for exemption of certain types of organizations or individuals

Refer to the CRA website to see which tax treaties are currently in place.

Follow these steps in H&R Block’s 2023 tax software:

  1. On the left navigation menu, under the Credits & deductions tab, click Other.

  2. Under the FOREIGN TAX CREDITS heading, select the checkbox labelled Foreign business income (T2209) then click Continue.

  3. When you reach the Foreign business income page, enter your information in the tax software.