Most newcomers to Canada who freelance continue serving clients from their home country or internationally. Understanding how Canada taxes this foreign income — and how to report it correctly — is essential from your first Canadian tax return.
The Core Rule: Worldwide Income Is Taxable
From the date you become a Canadian tax resident, Canada taxes your worldwide income. This includes:
- Income from US, UK, EU, or any other country’s clients
- Income from your home country clients where you worked before immigrating (earned after your Canadian residency date)
- Income from foreign platforms (Upwork, Fiverr, Toptal) received while you are a Canadian resident
This does not mean you pay double tax. Canada has tax treaties with over 90 countries. If you paid tax on this income in the source country, you can claim a Foreign Tax Credit in Canada to offset Canadian tax owing on the same income.
Reporting Foreign Income on T2125
All amounts on your T2125 must be in Canadian dollars. For each payment received in foreign currency:
- Note the date the payment was received
- Find the Bank of Canada exchange rate for that date at bankofcanada.ca (go to “Exchange Rates” → “Monthly Average Rates” or the daily rate if needed)
- Multiply: Foreign Amount × Rate = CAD equivalent
- Record the CAD equivalent as your business income
Example: You received $3,000 USD on March 15, 2025. Bank of Canada USD/CAD rate on March 15: 1.3850. Income to report: $3,000 × 1.3850 = $4,155 CAD.
GST/HST on Foreign Client Revenue
Services provided to clients outside Canada are zero-rated for GST/HST purposes — you charge 0% to foreign clients. However, this revenue still counts toward your $30,000 registration threshold. If your combined foreign + Canadian client revenue exceeds $30,000 in four consecutive quarters, you must register for GST/HST, even if all your income is from international clients.
Once registered, you can claim Input Tax Credits on all Canadian business purchases, even when serving only foreign clients.
Foreign Tax Credits
If you paid tax in another country on income you also report in Canada, you may be able to claim a Foreign Tax Credit to avoid paying tax twice on the same income. Use CRA Form T2209 (Federal Foreign Tax Credits) when filing your T1.
The credit is limited to the lesser of the foreign tax paid and the Canadian tax on that income. Keep documentation of foreign taxes paid (tax returns from the other country, tax payment receipts, or employer deduction records).
Foreign Asset Reporting: T1135
If the total cost of specified foreign property you owned at any time during the year exceeds $100,000 CAD, you must file Form T1135 (Foreign Income Verification Statement) with your T1 return. “Specified foreign property” includes:
- Foreign bank accounts with balances over $100,000
- Foreign investment accounts
- Shares in foreign companies (not listed on Canadian exchanges)
- Foreign real estate (not your home country primary residence)
Most freelancers receiving foreign client payments do not accumulate foreign balances over $100,000. But if you hold significant funds in a foreign account while setting up in Canada, track the balance carefully.
Frequently Asked Questions
Do I need to report money I earned before coming to Canada?
For income earned before your Canadian residency date, generally no — this was earned as a non-resident. However, you must disclose any assets brought into Canada (if over the T1135 threshold), and some transition rules apply to assets with accrued gains. In your arrival year, your tax return covers only the period from your residency date forward. A CPA familiar with newcomer taxation can ensure the pre-arrival period is handled correctly.
Can I continue using my home country bank account for client payments?
You can, but it creates reporting complexity. Income deposited to a foreign bank account is still Canadian taxable income in the year received. If the foreign account balance exceeds $100,000 CAD, T1135 reporting applies. Opening a Wise Business account (which holds funds internationally but is accessed through a Canadian-registered platform) is a cleaner solution for most newcomers with international clients.
What exchange rate should I use — the rate when I invoiced or when I received payment?
Use the Bank of Canada rate on the date payment was received (cash basis). If you use accrual accounting, use the rate on the invoice date. Most freelancers use cash basis — the date the client’s payment landed in your account is your income recognition date. Keep a record of the rate used for each payment in case the CRA asks.