Tax Query - Remote working to Indian Employer

[pspa]

Hi Experts,

Need your help in taking a decision about my job.

A small background on my case:

I am a software professional in India. My husband got a job in Canada (Halifax) and we came to Canada in Oct 2011. He is on a work permit and I got a open work permit along with him. I did not quit my job in India and had applied 2 months leave with my Indian employer. Now the leave is getting over and my employer is checking whether I can remotely work from Canada but on India payroll.

My questions:

Since I will be on India payroll, I will be paying taxes in India. Since India has tax treaty with Canada, I understand that I can avoid double taxation. But I am not very clear on how exactly to calculate the tax credit.

Suppose my taxable income in India is Rs. 8 lakhs (after deductions) and tax paid in India is 1.5 lakhs, how do I calculate the tax that I should pay in Canada (federal and Nova Scotia provincial tax) and what amount will be the tax credit ?

Should I convert everything in Canadian dollars and calculate the canadian tax and minus the indian tax ?

Kindly requesting experts to help me on this.

Thanks much, Parth.

 

[Jonboy]

Should I convert everything in Canadian dollars and calculate the canadian tax and minus the indian tax ?

Essentially this.

On your tax return you put the total amount, before deductions, of your Indian earnings converted at the Bank of Canada's average rate for the year (This goes on line 101). You then work out the Canadian taxes due on this income.

Then enter the Indian tax paid on schedule T2209 and then T2036 to calculate the federal and proincial tax credits. Again use the average exchange rate for the year. If the tax credits are more than the Canadian tax due then you owe nothing in Canada (but you don't get a refund). If the tax credits are less than the Canadian tax due then you have to pay the difference.

Be aware that foreign tax credits are a favourite object of audit by the CRA. Keep all documents that show the tax deducted. if you have to file a tax return in India the CRA will likley want to see this.