As a general rule, a Canadian resident can claim of credit against his/her/its Canadian income tax liability for foreign income taxes paid (“foreign tax credit”-“FTC”). The rules relating to claiming FTCs are generally found in section 126 of the Income Tax Act (“the Act”). Unless the foreign tax is related to a business carried on… Continue Reading
Category Archives: Cross-border transactions
CANADIANS WITH FOREIGN REAL ESTATE CORPORATIONS CAN FACE SURPRISING FAPI ISSUES
A Canadian resident who is a shareholder of a “controlled foreign affiliate” (“CFA”) will have special Canadian tax issues if that CFA earns “foreign accrual property income” (“FAPI”). Any corporation that is not resident in Canada (“Forco”) will be a CFA of a particular Canadian resident if it is controlled by that Canadian resident. However,… Continue Reading
MORE HOGWASH ON OFFSHORE TAX AVOIDANCE FROM TORONTO STAR/CBC DUO-CANADA’S TIEAs GET A BUM RAP!
Most readers of the June 17, 2016 edition of the Toronto Star could not have failed to notice the headline of a prominently featured article: “Tax loopholes cost Canada billions in lost revenue” This was followed by the following subheading: “Canada used agreements meant to crack-down on tax evasion to open-up tax loopholes” What a… 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
U.S. RESIDENTS PROVIDING SERVICES IN CANADA CAN HAVE A DEEMED PE
As a general rule, a U.S. resident carrying on business in Canada will be exempt from Canadian income tax on any profits from that business unless there is a “permanent establishment” (“PE”) in Canada. This is provided in Article VII(1) of the Canada-U.S. Tax Convention (“the Treaty”). There are exceptions to this general rule. The… 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
CANADIAN TAXATION OF DEATH BENEFITS FROM A U.S. IRA
A Canadian resident would not normally expect to pay any Canadian income tax on an inheritance received from a family member living in the U.S. However, that is exactly what can happen if a Canadian resident receives a payment as a beneficiary of a (conventional) Individual Retirement Account (“IRA”). That is because of the fact… 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