Pretend you are a young and single Canadian who has had a really fantastic year at his or her job on Bay Street. The year is almost over, and you know you are in line to get a seven figure bonus at the beginning of next year. You think to yourself that you could easily… Continue Reading
Category Archives: Nonresident taxation
CANADIAN NON-RESIDENT WITHHOLDING TAX ISSUES IN CONNECTION WITH PAYMENTS TO PARTNERSHIPS
Tax under Part XIII of the Income Tax Act (“the Act”) applies to many types of payments received by non-residents of Canada from Canadian residents[1]. Most commonly this can apply to dividends paid by Canadian corporations; royalties paid by Canadians for the use of property in Canada; rents paid by Canadians for the use of… Continue Reading
CANADA’S “THIN CAPITALIZATION” RULES-AN OVERVIEW
Like many other countries, Canada’s Income Tax Act (“the Act”) contains rules aimed at limiting the ability of foreign shareholders of a Canadian corporation (“Canco”) to reduce the taxable income of Canco by interest charges. These rules, which are commonly called “thin capitalization” rules, are found in subsections 18(4) through 18(8) of the Act. The… Continue Reading
CANADIAN TAX ISSUES WITH CROSS-BORDER GUARANTEE FEES
In situations where a foreign parent company (“Forco”) guarantees a debt of a Canadian subsidiary company (“Canco”) a fee may be charged for the provision of that guarantee. This would be particularly sensible for a tax planning perspective if Forco is subject to a lower rate of tax on its income than Canco. In addition,… Continue Reading
THE LITTLE-KNOWN TAX ON CANADIAN TRUSTS WITH FOREIGN BENEFICIARIES
Here is an interesting experiment to try: ask an average Canadian accountant or lawyer about “Part XII.2 tax”. I am betting that you will get a blank stare. To me, that would be no surprise at all! In fact, even those who regularly practice in the tax area are generally fairly clueless about this obscure tax… Continue Reading
WHAT IS A “PERIODIC PENSION PAYMENT” FOR CANADIAN TAX TREATY PURPOSES?
As a general rule, when a nonresident of Canada receives a payment from a Canadian-based pension plan, including a registered pension plan (i.e. a normal company pension plan), a registered retirement savings plan (”RRSP”), or a Registered Retirement Income Fund (“RRIF”), Canada imposes a 25% tax under Part XIII of the Income Tax Act. However,… Continue Reading
CROSS-BORDER COLLECTION OF CANADIAN INCOME TAX LIABILITIES
It is well established that, as a general rule, a country cannot collect a liability for income tax in a foreign jurisdiction. Thus, a government will only be able to seize assets located within its borders to satisfy an outstanding tax liability. This, in part, is the reason that the Canadian income tax system depends… Continue Reading
DECISION IN CONRAD BLACK TAX CASE SHOWS “FLIP SIDE” OF ANTI-AVOIDANCE RULE FOR CANADIAN EMIGRANTS
Many tax practitioners were quite surprised by the decision of the Federal Court of Appeal (Black vs. Canada-2014 FCA 275) and the previous decision of the Tax Court of Canada, both in 2014, regarding Lord Conrad Black. On the face of it, I think most people were shocked by the notion that a Canadian expat who… Continue Reading
MARCH 22, 2016 CANADIAN FEDERAL BUDGET TARGETS TREATY SHOPPING AND OTHER PERCEIVED ABUSES
For many years now, the Canada Revenue Agency (“CRA”) and the Ministry of Finance seem to have been fighting a losing battle to combat what they perceive to be the abusive use of tax treaties to reduce Canadian taxes. In recognition of the concern regarding this area, the “General Anti-Avoidance Rule” (“GAAR”), found in section… Continue Reading
HOW CANADIAN “STARTUP” ENTREPRENEURS CAN USE A CROSS-BORDER STRATEGY TO ELIMINATE TAX ON CAPITAL GAINS
It is hard these days to pick-up the pages of a business magazine or the financial pages of a newspaper without reading something about “startups”. Either there will be advice for people involved with startups, or stories about some nerd, still in his 20’s, who became a gazillionaire (at least on paper) when his startup… Continue Reading