How do I avoid double taxation on foreign income?

The three-step machine

Step one — source the income: every treaty allocates each income type. Employment is generally taxed where the work is performed, business profits only where a permanent establishment exists, dividends and interest at capped source rates, pensions per their own article.

Step two — the source country taxes first, but only within the treaty's limits. If a payer withheld 25% where the treaty says 15%, the fix is a refund claim in the source country — not a bigger credit at home.

Step three — the residence country credits the properly-paid foreign tax against its own tax on the same income. Canada computes the credit country by country, separately for business and non-business income, capped at the Canadian tax on that foreign income.

Where relief leaks

The recurring failures: foreign tax above the treaty rate (excess is not creditable — it must be reclaimed at source); credits claimed against the wrong year because two tax years do not line up; social charges that are not income taxes and never creditable; income exempt in one country but the exemption not claimed correctly in the other; and U.S. citizens applying the credit in the wrong direction on U.S.-source income (the treaty's re-sourcing rules exist precisely for them).

When to plan rather than repair

Before income arises, the tools are wider: routing income to the entity or country entitled to lower treaty rates, timing residency changes around realization events, choosing salary versus dividends for cross-border owners, and electing treaty positions (with Form 8833 or T1 disclosures where required). After the fact, the toolkit shrinks to credits, amended returns and refund claims — still worth pursuing, routinely successful, but narrower.