Foreign Income and Tax Credits

Updated: 2020-08-31

In TaxCycle, where you enter foreign income depends on the type of income you need to report and the slip, form or statement on which the income is reported to your client.

Entering foreign income on slips 

1. If foreign income and taxes are reported on a slip—such as a T3, T5, T5008 or T5013—enter the amounts on the equivalent slip in TaxCycle and set the currency and exchange rates at the top of the slip.
2. These slips that allow foreign income reporting have boxes for entering foreign income and taxes. For example, on the T5 slip, enter foreign income in box 15 and foreign tax paid in box 16.
   
3. Use the Foreign worksheet for income and taxes that do not appear on a slip—such as U.S. Social Security Benefits or a foreign pension. This worksheet behaves like other slips but allows more flexibility in the type of income you can report.
4. Record foreign income in the same currency as reported on the slip. Then, enter a currency code in the Currency field at the top right. You can type a currency code or click the down arrow to select one. TaxCycle then uses the built-in exchange rate to calculate the Canadian dollar equivalent.
5. For certain currencies (such as USD, EUR or GBP), you can choose either the year average or a monthly exchange rate.
6. If the amount is reported in Canadian dollars, choose CAD. TaxCycle will apply an exchange rate of 1.00000. You must still enter the name of the foreign country.
7. In the Foreign country name field, type the name of the foreign country. This is used to create an associated group of forms for foreign tax credits—FTC, T2209 and T2036.
8. To group information for the same country onto the FTC, T2009 and T2036 forms, type the country name exactly the same way on all slips. 

Foreign rental properties

If the taxpayer owns rental property outside Canada, here’s how to claim any foreign income and tax:

1. On the T776, complete the Property outside Canada section, entering the currency, exchange rate, foreign tax paid and the country name.
2. Enter the foreign address for the property.
3. The Province list includes US states.
4. To enter a foreign Postal code, press Ctrl+F2 to override the format.
5. Select the Country.
6. In the Foreign column, enter rents and expenses in the foreign currency. TaxCycle automatically converts them to Canadian dollars.

T1135 statement

When your client answers confirms they have foreign property worth more than $100,000, you must complete the T1135 for the client. Answer Yes to this question on the Info worksheet to activate review messages and electronic filing. Learn more in the T1135 EFILE help topic.

Foreign tax credits

1. When you enter a foreign country on a slip, TaxCycle creates the related set of foreign tax credit forms:
   • FTC—Foreign Tax Credit worksheet
   • T2209—Federal Foreign Tax Credits
   • T2036—Provincial or Territorial Foreign Tax Credits
2. TaxCycle creates one set of the FTC/T2209/T2036 forms for each country. But this will only happen if you type the country exactly the same way on all slips that have income from that country.
   
3. The FTC worksheet groups income and tax paid together by type and then flows these amounts to the T2036 and T2209 forms to claim the federal and provincial foreign tax credits.
4. Scroll down to see all the sections on the FTC worksheet. Each section on the worksheet is collapsible.
5. Amounts from the T2036 and T2209 flow to the tax calculations on federal Schedule 1 and the provincial Schedule 428.
6. Page 2 of FTCSum (Foreign Tax Summary) lists all of the foreign tax and credits reported in the return.

Foreign Exchange Rate Tool

Easily select a foreign exchange rate for forms like the S3M.

1. Place your cursor in the Exchange Rate field.
2. Go to the Tools menu and click Exchange Rates.
   
3. Select a currency from the drop-down list.
4. Click on a rate (annual or monthly).
5. Click on a monthly rate to see the daily rates for that month at the bottom left. Click on a daily rate there to use it.
6. Double-click on a rate to copy it to the clipboard, or click on a rate and then click the Copy to clipboard button.
7. Click the Copy to field button to enter the rate on the field.
   
8. TaxCycle adds the rate to the field along with a memo to indicate the currency and the date for the exchange rate.