Do I file Form T2036 even if no tax is owed?
Relief or credit claim obligations of this kind are generally required on the facts rather than on the tax result, so a nil position does not remove one. Canadian residents whose foreign non-business tax exceeded the federal credit limit.
What happens if I have missed Form T2036 for several years?
Missed years are dealt with as a package rather than one at a time, because the route chosen for the first year affects the relief available for the rest. We map the years and the obligations before anything is filed.
Is Form T2036 the same as the other reports I already file?
No. Claims the provincial or territorial share of the foreign tax credit where the federal credit did not absorb all the foreign tax. Satisfying a different obligation, even one covering the same accounts or entity, does nothing for this one.
Why is some of my foreign tax still not credited?
Because the federal credit is limited. It is capped by reference to the Canadian tax otherwise payable on the foreign income, so where the foreign country has taxed that income more heavily than Canada would, the federal computation cannot absorb all of it. The excess is not automatically lost. The provincial or territorial share of your tax is a separate liability, and there is a separate credit available against it, computed on its own form. Filers who stop at the federal line leave that second computation unmade, which is why the unabsorbed tax appears to vanish.
Do I have to claim the provincial credit separately?
Yes. It is a separate computation on a separate form, not an automatic follow-on from the federal credit. Software will often prepare the federal side and leave the provincial side blank unless asked to look at it. The claim only arises where foreign non-business tax exceeded what the federal credit could absorb, so the first step is to establish that there is an excess at all, and the second is to compute the provincial credit on that excess rather than on the whole of the foreign tax paid.
Which province claims the credit if I moved during the year?
Provincial tax follows the province you were resident in at the end of the year, and this credit is a credit against that province's tax. A move therefore does not split the claim between two provinces; it points the whole computation at one of them. What the move can change is the rate environment the credit is measured against, and so how much of the unabsorbed foreign tax the provincial computation actually takes up. Establish year-end residence first and compute afterwards — doing it the other way round produces a figure you have to redo.
Is the claim made country by country?
The foreign tax credit is computed on a country-by-country basis, and that discipline carries through to the provincial claim. Pooling tax paid to several countries into one figure produces a credit that is too generous in one direction and too mean in another, and it is the first thing a reviewer unpicks. Keep each country's income and each country's tax separate, from the source documents through to the claim. Where withholding statements arrive in different currencies and at different points in the year, record the conversion basis used, because you will be asked for it.
Does this cover tax on foreign business income too?
The claim here is for foreign non-business income tax — the tax withheld from dividends, interest, pensions, royalties and similar receipts. Tax on income from a business carried on abroad runs down a different route, with its own rules about what happens to an unused amount, and mixing the two is a common reason for a claim being reduced on review. If your foreign income has both elements — a foreign operation alongside a portfolio, say — separate them at source, and do not let one foreign tax statement stand for both.
Can I go back and claim a credit I missed?
Usually, by adjusting the year in question rather than putting the claim into the current return. Foreign tax is credited against the year the income belongs to, so a missed provincial credit is a matter of correcting that year's computation. What you need is the return as filed, the foreign tax statements supporting the amount withheld, and the federal computation showing what was left unabsorbed. There are time limits on adjusting a past year and they vary with the circumstances, so establish which years are still open before assembling the file rather than afterwards.
How does Canada's foreign tax credit work?
There are two of them and they are computed separately: a federal credit and a provincial or territorial one. Both work country by country, and both split foreign tax between business and non-business income, because the limits differ. The credit is capped at the Canadian tax on that foreign income, and non-business foreign tax above the cap may instead be deductible. Foreign amounts convert to Canadian dollars at the rate for the transaction. See the federal foreign tax credit.
How do I report a foreign pension on a Canadian return?
Convert the gross pension to Canadian dollars, report it as foreign pension income, and claim the foreign tax withheld as a foreign tax credit — federal and provincial computed separately. If a treaty article exempts a portion, deduct that portion on the line provided for treaty-exempt income so the return shows both the receipt and the exemption. Keep the payer's annual statement and the foreign return, because the credit is only as good as the evidence of tax paid. See the foreign tax credit.
