Canadian Foreign Tax Credit Explained: Form T2209
How Canadians credit U.S. tax, the limits, the provincial credit, and the 15 percent property-income rule
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Canada's foreign tax credit lets a Canadian resident credit income tax paid to another country — usually the United States — against Canadian tax on the same income, on Form T2209. It's limited to the Canadian tax on that income, computed separately for business and non-business income, with a provincial credit for excess non-business tax.
On this page
How it works
| Item | Rule |
|---|---|
| Non-business income tax | Credit limited to federal tax on the foreign non-business income; excess goes to the provincial or territorial credit on Form T2036 (outside Quebec) |
| Property income cap | For an individual's foreign income from property other than real property, foreign tax above 15 percent of that income is not creditable but is deductible in computing income (section 20(11)) |
| Business income tax | Separate limit; unused business-income credits carry back three years and forward ten |
| Non-business carryover | None — unused non-business credits are lost; section 20(12) lets foreign non-business tax be deducted instead of credited |
| Treaty sourcing | Article XXIV(3) deems income the U.S. may tax under the treaty to arise in the U.S.; for U.S. citizens in Canada, Article XXIV(4)–(6) limit Canada's credit to the tax a non-citizen would pay and re-source income so the U.S. credits the rest |
Common cases
U.S. dividends (15 percent U.S. withholding — fully creditable within the 15 percent cap), U.S. rental income (U.S. tax on Form 1040-NR — credited; real property income is outside the section 20(11) 15 percent cap), U.S. wages earned while working in the U.S. (credited against Canadian tax on the same wages), and a U.S. property sale (U.S. tax on the gain credited).
The U.S. counterpart
The U.S. side uses Form 1116 (the Form 1116 guide). For a U.S. citizen in Canada, each country's credit and the treaty's re-sourcing rules decide which country taxes first.
Frequently asked questions
How do I avoid double tax on U.S. income as a Canadian?
Claim the foreign tax credit on Form T2209 for U.S. tax paid on that income.
Is all U.S. withholding creditable?
Up to 15 percent on property income like dividends; any excess is deducted instead.
What happens to unused credits?
Business-income credits carry back three and forward ten years; non-business credits generally don't carry over.
Is there a provincial foreign tax credit?
Yes, for excess non-business foreign tax not absorbed federally.
Official sources
The Canada Revenue Agency explains: “Complete this form to calculate the federal foreign tax credit.” — Canada Revenue Agency, T2209 Federal Foreign Tax Credits, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2209.html
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our Canadian Tax Desk handles Canadian foreign tax credit computations on T2209 and coordination with U.S. Form 1116 credits. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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