What does source income mean on a tax return?
Source income is income that a country's own rules treat as arising inside that country. Each country writes those rules for itself, and they usually look at something concrete: where the work was done, where the property sits, where the payer is resident, where borrowed money was used. The label matters because the country of source normally taxes first, and the country of residence then has to make room for that tax by giving a credit or an exemption. So sourcing is not a description of your income. It is the step that decides which return reports it first and which one gives the relief.
Why does it matter which country my income is sourced in?
Because relief runs one way. The source country taxes on the basis that the income arose there; the country where you live taxes you on everything and then relieves the source country's tax. Get the sourcing wrong and the relief does not line up. You claim a credit in the wrong return, or against tax the other country never had the right to charge, and the claim fails on review. Sourcing also decides who you have to deal with. It sets which authority can ask you for a return, and which one you approach if both of them want the same income.
Is my salary sourced where I work or where I am paid?
For employment income both systems generally look to where the services were physically performed, not to where the employer sits, which payroll issued the money, or which account received it. That is why a payslip is poor evidence of sourcing and a calendar is good evidence. If you worked in two countries in one year, the salary is not sourced wholly to either. It is divided according to where the working days fell, and each country taxes its own part. Keep a record of travel while it is fresh. Reconstructing a year of movements afterwards is the slowest part of repairing one of these returns.
Can two countries both treat the same income as theirs?
Yes, and it is common. Each country applies its own sourcing rules, and those rules can point at different places for the same payment: one at the payer's residence, the other at the place of the underlying asset or activity. Where that happens a treaty often contains a rule that settles the question for treaty purposes, and sometimes re-sources the income so that relief becomes available on the correct side. If nothing in the treaty decides it, the route is the competent authority procedure, in which the two administrations deal with each other. Both paths depend on filing a position rather than waiting for one of them to concede.
Does a tax treaty change where income is sourced?
A treaty can. Some articles allocate a category of income to one country outright. Others cap what the source country may take and leave the remainder to the country of residence. A few go further and deem income to arise in the other country purely so that a credit can be claimed, which is the only way to relieve double tax in certain patterns. None of this is automatic. A treaty position has to be claimed on a return, is sometimes a position that must be disclosed, and is tested against the anti-abuse wording now written into these agreements. Settle the sourcing first and the article second.
Why was my foreign tax credit reduced or refused?
Usually because the income was not sourced where the claim assumed. A credit relieves tax the other country was entitled to charge, and that entitlement comes from source. If the income turns out to be sourced in your country of residence, the other country's tax was not creditable, and the answer lies in a refund claim there rather than a credit at home. Credits are also worked out category by category, so income of one character cannot borrow the credit room of another. Before amending anything, set out where each amount is sourced and under which rule. That single table decides whether the claim survives.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
How many days can I spend in a country before I become tax resident?
It depends on the country, and a day count is only ever the start. Many use a threshold in a tax year, some also look at averages across several years, and some have no day test at all and decide on where your home and life are. Two countries can both conclude you are resident, which is what the treaty tie-breaker exists to settle. Counting days without checking the tie-breaker is how people end up filing as resident nowhere. See the residency tie-breaker.
