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9.1. Unilateral and Treaty Based Methods Available for the Elimination or Mitigation of Double Taxation

Canada provides for foreign tax relief via unilateral provisions and through double taxation agreements (DTA's) with foreign jurisdictions. In general, Canadian resident tax payers are able to claim a credit for foreign income and profits taxes paid, as well as withholding taxes. Foreign business and non-business taxes are calculated separately on a country-by-country basis, and are generally limited to the amount of Canadian tax payable on the income.

In the case of foreign business tax credits, excess credits can be carried forward to offset losses on country-by-country basis. Credits arising after 22 March 2014 may be carried forward up to 10 years. Credits arising prior to the change may be carried forward up to 7 years. Foreign business tax credits may also be carried back up to 3 years.

In the case of non-business tax credits, no carryover is allowed.

Below is a summary of the available methods for various income tax streams based on domestic law.

Royalty Copyright OC
Capital Gains OC
Dividends IC
Interest OC
Royalty Patent OC
Sales OC
Service Management OC
Service Technical OC
Royalty Trademark OC

The credit column shows the type of foreign tax credit granted when the receiving country receives a payment.  Four abbreviations are used for the type of foreign tax credit available:

  • NC means no credit but foreign withholding taxes can be deducted.
  • OC means ordinary credit, i.e., credit for foreign withholding taxes (e.g., withholding taxes).
  • IC means indirect credit, i.e., credit for underlying corporate taxes as well as foreign withholding taxes.
  • ND means no credit and no deduction for any foreign withholding taxes incurred.