Foreign Tax Credit
The Foreign Tax Credit (FTC) prevents double taxation when you earn income in another country that has already been taxed by that country's government. Canada taxes its residents on worldwide income, but allows you to claim a credit for foreign taxes paid, so you don't pay full tax in both jurisdictions.
The FTC is generally limited to the lesser of the foreign tax paid and the Canadian tax that would apply to the foreign income. You calculate the credit separately for "non-business income" (investments, employment) and "business income." If the foreign tax exceeds the Canadian tax on that income, the excess can be carried back 3 years or forward 10 years for business income.
Common situations where the FTC applies: US withholding tax on dividends from US stocks (typically 15% under the Canada-US tax treaty), rental income from foreign property, and employment income earned while working abroad. The FTC is claimed on Schedule T2209 of your T1 return.
Related Terms
T1 (General Income Tax Return)
The T1 is the standard personal income tax return that Canadian residents file annually with the CRA.
CRA (Canada Revenue Agency)
The Canada Revenue Agency (CRA) is the federal body responsible for administering Canada's tax laws, collecting income taxes and GST/HST, and delivering benefit programs such as the Canada Child Benefit (CCB) and the GST/HST credit.