How to Fill Out and File Form T2209: Federal Foreign Tax Credits

To fill out Form T2209, work through Part 1 for non-business foreign income tax and Part 2 for business foreign income tax, complete a separate calculation for each country you paid tax to, and carry the combined result to line 40500 of your T1 return. The form caps your federal foreign tax credit at the lesser of the foreign tax you actually paid and the share of your Canadian federal tax that relates to that foreign income, so the arithmetic matters as much as the entries.¹

What to Have in Front of You

Before you start entering numbers, pull together:

Proof of the foreign tax you paid. Official receipts, a foreign tax return, or a final assessment notice from the foreign government. For U.S. income, that means your W-2 slip and your 1040 or U.S. tax account transcript.¹
Canadian information slips reporting foreign amounts, such as T3 slips for trust income and T5 slips for investment income.
Your T1 return, at least far enough along that you know your total income and your federal tax otherwise payable. Several T2209 lines pull directly from those figures.
Exchange rates. Convert every foreign amount to Canadian dollars using the Bank of Canada rate in effect on the day the income or tax arose. For a stream of payments spread across the year, such as a monthly pension, use the Bank of Canada annual average rate instead.¹²

Keep the receipts and supporting documents for at least six years from the end of the tax year they relate to. The CRA can ask to see them at any point in that window, and losing them can mean losing the credit.³

One thing to leave out entirely: if a tax treaty exempts your foreign income from Canadian tax and you deducted it on line 25600, do not include that income or its related foreign tax anywhere on T2209.¹ The same goes for voluntary taxes, property or sales taxes (only income or profits taxes qualify), and foreign taxes tied to a capital gains deduction claimed under section 110.6.⁴

Part 1: Non-Business Foreign Income Tax

Part 1 covers foreign tax on interest, dividends, capital gains, rental income, and employment income earned abroad that does not come from a business you carried on there. This is the section most individual filers use.

Enter the foreign non-business income tax you paid, in Canadian dollars, at the top of Part 1. The form then walks you through the cap: your credit is the lesser of that foreign tax and a Canadian-portion figure calculated by taking your net foreign income, dividing it by your adjusted Division B income, and multiplying by your Canadian federal tax otherwise payable.⁴

Two definitions matter for those lines. Net foreign income means the gross income from that country minus any expenses or deductions directly tied to earning it. Adjusted Division B income is your total income for the year after the adjustments the Income Tax Act allows for this calculation.

The practical outcome of the cap: if the foreign country taxed the income at a rate lower than Canada would have, you get credit for the full foreign tax paid and pay Canada the difference. If the foreign rate was higher, your credit stops at the Canadian portion, and the excess foreign tax has no carryover under Part 1. It is not lost forever, though — the deduction options below can rescue some of it.

Part 2: Business Foreign Income Tax

Part 2 applies if you carried on a business in another country and paid business income tax there. The layout mirrors Part 1 — you enter the foreign business tax paid, work out net foreign business income, and compare the cap amounts — but the formula under subsection 126(2) uses a “least of three amounts” test rather than the simpler two-amount comparison in Part 1.⁴

The classification between Parts 1 and 2 has one consequence worth knowing before you assign a number: unused business foreign tax credits can be carried back three years or carried forward ten. Non-business credits cannot be carried at all.⁵ Miscategorizing a business tax as non-business means the carryover disappears.

Run the Calculation One Country at a Time

The country name goes at the top of the form, and the credit is calculated separately for each country you paid tax to. If you paid taxes to more than one country, complete a separate T2209 for each. Certified tax software handles this by generating a worksheet per country in the background. Credits from one country cannot offset Canadian tax on income from another, which stops filers from blending a high-tax country with a low-tax one to inflate the overall claim.⁶

Once every per-country calculation is done, add the non-business and business credits together across all countries. That combined figure goes on line 12 of T2209 and then to line 40500 of your T1.¹

Treaty Limits That Change the Number You Enter

A tax treaty often caps the withholding rate a foreign country is allowed to charge on certain income. U.S. dividends paid to a Canadian resident, for example, are typically limited to 15 percent under the Canada–U.S. treaty, or 5 percent for a Canadian corporate shareholder holding at least 10 percent of the voting stock. If the foreign payer withheld more than the treaty rate, only the treaty-limited amount qualifies as foreign tax paid for T2209 purposes. Recovering the excess is a matter between you and the foreign tax authority.

The mirror-image case is a treaty that exempts the income from Canadian tax entirely. That income comes off on line 25600, and both it and the foreign tax stay out of your T2209 calculation.¹ Including a treaty-exempt amount on T2209 is a common trigger for reassessment.

When the Credit Is Capped: Deduction Alternatives

Because non-business credits do not carry over, foreign tax above the Canadian cap can otherwise go to waste. Two provisions of the Income Tax Act let you deduct the excess instead of crediting it:

Subsection 20(12) allows a deduction from income for foreign non-business income tax. Because it reduces taxable income rather than tax directly, the benefit is smaller than a credit, but it keeps the excess from disappearing.
Subsection 20(11) allows a deduction for foreign taxes on property income in a country where the tax rate exceeds 15 percent, under specific conditions.

Any amount deducted under 20(11) or 20(12) has to be removed from the non-business foreign tax you enter on T2209 — no claiming the same dollar twice.⁴ Tax software usually optimizes between the credit and the deduction; on a paper return, run the numbers both ways and pick the one that saves more.

Provincial or Territorial Tax on the Same Income

T2209 only offsets federal tax. If you also owe provincial or territorial tax on the same foreign income, complete Form T2036, Provincial or Territorial Foreign Tax Credit.⁷ T2036 covers non-business foreign income tax only; there is no equivalent provincial credit through this form for business income tax. Finish T2209 first, since some T2036 lines reference the federal calculation.

Attaching, Filing, and Amending

Attach the completed T2209 to your T1. Filing electronically through NETFILE or EFILE with certified software sends the T2209 data along with the return automatically. Paper filers include the physical form in the envelope with their supporting receipts.¹ Foreign tax credit claims can attract a closer review, so keep your documentation within reach after you file.

If your foreign tax figure changes after filing — a foreign reassessment, a refund from the foreign government, or an error you caught later — wait for your Notice of Assessment, then request an adjustment.⁸ Online, sign in to CRA My Account, open “Tax returns,” choose “Change my return,” pick the year, and update the relevant lines; ReFILE through certified software is the other electronic route. By mail, send Form T1-ADJ with supporting documents to your tax centre as a standalone package, not tucked in with a current-year return. The CRA reassesses the affected year and issues a revised Notice of Assessment either way.

1
Canada Revenue Agency. Line 40500 – Federal Foreign Tax Credit
2
Bank of Canada. Annual Exchange Rates
3
Canada Revenue Agency. How Long Should You Keep Your Income Tax Records
4
Department of Justice Canada. Income Tax Act – Section 126
5
Canada Revenue Agency. Income Tax Guide – Chapter 7 Page 8 of the T2 Return
6
Canada.ca. Income Tax Folio S5-F2-C1, Foreign Tax Credit
7
Canada.ca. Provincial or Territorial Foreign Tax Credit
8
Canada Revenue Agency. Changing a Tax Return