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Originally posted by dimple2001

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Originally posted by web2000

I have one more question to ask.

What about the tax on income which is fully exempted by the Indian govt. A good example is the income from agricultural produce which is not subjected to any tax in India. Will that income be fully taxable in Canada?

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That would entirely depend on the terms of the tax treaty (if any) between India and Canada. You'll have to talk to tax experts or read through hundreds of pages to find out if there is any mention of such terms.

The concept works like this. The country where you earn the wages expects you to file and pay/receive money independent of any other country.

Once you settle the bill of the wage earned country, the "home" country where you are a tax resident expects you to report WW income and pay/receive money independent of any other country.

The home country allows you take credit for taxes already paid regardless of presence/abence of tax treaties.

The tax treaty, if exists, then digs deeper and says what income is exempt and what is not and what credits can be taken and what cannot be. The tax treaty provides potentially further advantage to the terms of the cross-border taxation.

For example -

Canada allows charitable contributions (made in the US to US charities) to be deducted in your Cdn return.

Canada does not recognize 401k contribution and does not reduce your before tax income. Therefore if you made 100k usd and contributed 20k usd before taxes, US wages would be 80k and Cdn wages to be reported on line 104 would be 100k.

Canada recognizes the social security amount and medicare amount taken out of your US paycheck as taxes paid. So, in my earlier post, my fed+state tax paid was 25k. Let's say I paid 10k in SS and medicare. My total taxes paid is not 25k, but 35k. Hence, my available foreign tax credit is 35k. This benefit given by Canada offsets to certain extent the non-recognized 401k reduction.

The above examples most likely are due to tax treaty agreements.

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