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The foreign tax credit lets you subtract tax you already paid to another country from the tax you owe Canada on the same income. You claim it on line 40500 of your federal return using Form T2209, and for each country you get the smaller of two amounts: the foreign tax you actually paid, or the Canadian tax on your net income from that country.
That second half is what trips people up. The credit can’t be bigger than what Canada would have charged anyway, so a country with a high rate doesn’t hand you a refund of the difference.
Who can claim a foreign tax credit?
You need to have been a resident of Canada at any time in the year, and the foreign income has to be on your Canadian return. The same income can be taxed once abroad and again here. The credit is the relief for that. The CRA’s line 40500 page has a “who can claim” section if you want the official wording.
If you have no foreign income on your return, there’s nothing to claim. If the income is on your return but no foreign tax was paid, same answer. Both parts have to be there.
Think of Nadia in Ottawa, who rents out a small flat in Lisbon and pays tax on that rent in Portugal. She reports the rent in Canada too, and the credit is how she avoids paying full tax twice on the same euros.
The limit, step by step
Work one country at a time. Add up the foreign income from that country, then work out what Canadian tax that income is responsible for. Compare it with what the foreign government took. Claim the lower figure.
| Item | What to use |
|---|---|
| Federal claim | Form T2209, result goes to line 40500 |
| Provincial or territorial claim | Form T2036 (Quebec residents deal with Revenu Québec) |
| Foreign amounts in dollars | Bank of Canada rate on the day the amount arose |
| Regular payments | Average annual exchange rate |
| Foreign language receipts | Certified translation if you file on paper |
The currency rule matters more than it looks. A dividend in US dollars is converted to Canadian dollars, and so is the tax taken off it, both at the rates the CRA sets out.
A worked example on $80,000 of salary
Say you live in BC, earn $80,000 and also get $2,000 of foreign investment income. Suppose the other country withheld $300 from it. This is our own illustration, not a typical rate.
The income tax calculator puts federal tax at $9,243 on the $80,000 alone. Add the $2,000 and it rises to $9,653, or about 11.8% of $82,000. A rough ceiling on the federal credit is 11.8% of $2,000, which is about $235. So of the $300 withheld abroad, around $235 comes back as a federal credit and roughly $65 is left over.
Treat the $235 as a guide only. The real T2209 uses its own formula and your own figures, and it may land somewhere else. What the example does show is why a credit often falls short of the tax withheld. Sixty-five bucks stuck abroad isn’t a disaster, but across a few years of dividends it adds up.
BC tax rose from $4,031 to $4,185 with the extra income, so a smaller provincial credit works separately on T2036. What happens to unused foreign tax wasn’t confirmed from the CRA page, so check the form’s guide before assuming it carries forward.
Can you ask the other country for the money back?
Sometimes the better move is on the foreign side. If a country withheld more than a tax treaty allows, the usual fix is a refund request to that country’s own tax office, not a bigger credit here. That’s a process run by the other government, with its own forms and deadlines. If the amount is small, many people let it go. If it’s large, ask the payer or a cross-border preparer how the treaty applies.
Foreign tax credit mistakes that cost money
What goes wrong most? Forgetting to claim at all, and it’s also the easiest slip to avoid. If a foreign slip shows tax withheld, look for the credit.
The second is mixing countries. The limit is figured country by country, so a low-tax country doesn’t borrow room from a high-tax one. The third is converting at one convenient rate for everything, when the CRA asks for the rate on the day the amount arose, or the yearly average for regular payments.
Paper filers have one more chore. You send in the T2209, official receipts for the foreign tax and your calculation notes. If you file online, keep the papers on hand in case the CRA asks. Either way, the receipt from the foreign tax office is the proof, so don’t bin it.
Also worth a look: the tax credits calculator covers other federal credits, though it doesn’t handle the foreign one. Investors with dividends can run the dividend tax calculator to see the Canadian side, and the marginal tax rate calculator shows what your last dollar of foreign income adds.
Our sources
The rules come from the Canada Revenue Agency page on the federal foreign tax credit (line 40500). Tax figures come from the 2026 federal and BC data in our calculators. The $300 withholding is invented for the example. Treaty withholding rates aren’t quoted here, because they weren’t confirmed for this page, so look them up for your country before you plan around them. This is an independent site with no tie to the CRA.
Frequently asked questions
Where do I claim the foreign tax credit?
On line 40500 of your federal return, using Form T2209. A provincial or territorial claim uses Form T2036, except in Quebec.
How much can I claim?
For each country, the smaller of the foreign income tax you paid and the Canadian tax on your net income from that country.
Which exchange rate do I use?
The Bank of Canada rate on the day the amount arose. For regular payments, use the average annual rate.
Do I send receipts with my return?
Paper filers attach the T2209, official receipts and calculation notes. Online filers keep them in case the CRA asks.
Can I claim if I moved to Canada mid-year?
You must have been a resident of Canada at any time in the year. The claim then covers foreign income on your Canadian return.
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