The circumstances surrounding foreign dividends are somewhat complicated, butheres the gist:canada has a tax treaty with many other countries around the world, in part, to preventinvestors from being double taxed. so lets say you pay earn a dividend, but youreceive only a net amount from the foreign source. assume that the foreign sourcekept $100 for taxes. assume in canada that you would have been required to pay$120 in tax because the foreign source has a lower tax rate. you may be entitled to acredit of $100 in canada, which means you would pay only $20 to the canadiangovernment. the net effect would be paying a total amount of $120 in taxes.or, lets say you were required to pay $100 to the foreign source for taxes, andcanadas tax rate is lower than the foreign source. in canada, assume you wouldhave been required to pay only $80. you may be entitled to a tax credit for $80, inwhich case you would pay nothing to the canadian government. the net effect wouldbe that you pay a total of $100 in tax on the dividend.you can see from the above that the tax credit is designed so that you end up paying anet amount equivalent to the highest tax rate of the two countries in question.these are obviously simplified answers, but it gives you a broad idea of how taxesmight be paid. you should always check with cra to make sure what thecircumstances surrounding your foreign investments might be so there arent anysurprises.
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