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If you earned foreign income, you report it on your Canadian return in Canadian dollars. The CRA’s pages on foreign employment income and foreign interest and dividends all say the same thing: convert with the Bank of Canada rate on the day the money arose, and don’t knock off the foreign tax you already paid. You claim that tax back in a separate step.
Then there’s a second duty that has nothing to do with how much you earned. If your foreign property cost more than $100,000, you also file a form listing it. One is about income, the other is about what you hold, and people often mix the two up.
Which lines and forms cover foreign income?
| What you have | Where it goes |
|---|---|
| Wages from a foreign employer | Line 10400, other employment income |
| Foreign interest or dividends | Line 12100, interest and other investment income |
| Foreign tax you paid on that income | Form T2209, result on line 40500 |
| Provincial credit for the same tax | Form T2036, outside Quebec |
| Foreign property costing over $100,000 | Form T1135 |
Other income types, such as foreign rental income or a foreign pension, have their own lines on the return. Check the CRA’s guidance for your type of income before you file, since the line decides which credits you can claim.
How do you convert foreign income to Canadian dollars?
Use the Bank of Canada rate on the day each amount arose. For payments spread through the year, such as a monthly payment, the CRA allows the annual average rate. Pick the method and use it for all the amounts of that kind.
Say you worked for a US employer and your US wages were US$40,000, with US$3,000 of US tax withheld. At an average rate of 1.37 (an invented rate, to show the arithmetic), the wages are C$54,800 and the US tax is C$4,110.
Small amounts count too. Say a US savings account paid you US$150 in interest. At the same 1.37 that’s C$205.50 on line 12100, even though no slip showed up in your mailbox.
One quirk applies to a US W-2. The CRA says to add back 401(k), 403(b) or 457(b) contributions, and to leave out FICA withholdings. So your W-2 box 1 number isn’t the figure you type in.
How does the foreign tax credit work?
For each country, you can claim the smaller of two amounts. One is the foreign income tax you actually paid. The other is the Canadian tax otherwise payable on your net income from that country. The CRA sets this out on its federal foreign tax credit page.
Using the same example, the credit can’t exceed the C$4,110 paid. If the Canadian tax on that income worked out to C$6,000, you’d claim the full C$4,110. If it worked out to only C$3,000, the claim stops at C$3,000. To see what the Canadian side might be, try the income tax calculator, and the marginal tax rate calculator shows the rate on each extra dollar. One caution: those tools work on your total Canadian-dollar income and don’t split tax by country.
Paper filers attach T2209, the receipts showing foreign tax paid, and notes on the calculation, and US taxpayers add their W-2 and 1040. If you file online, keep them in case the CRA asks.
Do you have to report foreign property too?
Only when the total cost was above $100,000 at some point in the year. Holdings inside an RRSP or TFSA don’t count, and neither does personal-use property. Cost means the adjusted cost base, not its current value.
Picture Dev, who owns a US brokerage account that cost US$60,000 and a rental condo in Mexico that cost US$55,000. Each is under the line, but together they’re well over C$100,000, so the form is needed. Add them up before you decide.
The form is due on or before your income tax return’s due date, even where you don’t otherwise have to file a return. The CRA’s T1135 page gives April 30 for most individuals and June 15 for self-employed individuals, so a late filer faces $25 a day up to 100 days, with a $100 minimum and a $2,500 maximum. A knowing failure to file carries far bigger penalties, including $500 a month for up to 24 months.
Property held in a TFSA is excluded, and the TFSA calculator shows how much room you have.
What goes wrong with foreign income reporting?
Reporting the net amount is the usual slip. The foreign tax comes off before you see the money, so it’s easy to copy a figure that’s already been reduced when the return wants the gross. Leaving out a small foreign interest amount is another. The CRA’s line 12100 page asks for foreign interest in Canadian dollars, and a small amount is still foreign income.
And then there’s the belief that you only file the T1135 if the property produced income. The test is cost. A vacant property abroad still counts unless an exclusion applies.
Whether a particular asset counts as specified foreign property is a yes or no question the CRA page answers, so read the exclusions list before you decide.
What should you keep on file for foreign income?
Keep the foreign slip or statement, the rate you used and where you got it, and proof of any foreign tax paid. A screenshot of the Bank of Canada rate for the day is enough. Business records have to be held for six years from the end of the last tax year they relate to, and it’s smart to treat your foreign papers the same way.
Before tax time, do a quick ballpark check. Add up the foreign amounts you converted and see whether the total looks right against your bank deposits. A gap usually means a missing slip, a missed conversion or a deposit that was already net of foreign tax.
Where this information comes from
The conversion rule, the W-2 treatment and the credit limits come from the CRA‘s pages on lines 10400, 12100 and 40500. The T1135 threshold, exclusions and penalties come from the CRA’s Foreign Income Verification Statement pages and its table of penalties, read in October 2026. The wage and tax figures in the examples are invented, and this site has no tie to the CRA.
Frequently asked questions
Do I report foreign income in Canadian dollars?
Yes. The CRA says to convert with the Bank of Canada rate on the day the amount arose, or an average rate in certain cases.
Should I subtract foreign tax from the income I report?
No. Report the gross income and claim the foreign tax as a credit on Form T2209, with the result on line 40500.
When is Form T1135 required?
When the cost of your specified foreign property was more than $100,000 at any time in the year.
What is the penalty for filing the T1135 late?
The CRA's table gives $25 a day for up to 100 days, with a $100 minimum and a $2,500 maximum. Knowing failures carry larger penalties.
How is a US W-2 handled?
Add back any 401(k), 403(b) or 457(b) contributions to the foreign employment income and leave out FICA withholdings.
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill