A corporation that is not resident in Canada may still be subject to corporate income tax in Canada if it has income from carrying on business in Canada. Such tax is levied under Part I of the Income Tax Act (“the Act”) and if the corporation’s profits are attributable to a permanent establishment (“PE”) in… Continue Reading
Category Archives: Nonresident taxation
CANADIAN TAX ISSUES WITH RRSP AND RRIF PAYMENTS TO NON-RESIDENTS
As a general rule, any amounts paid from a Registered Retirement Savings Plan (“RRSP”) or Registered Retirement Income Fund (“RRIF”) to a non-resident of Canada are subject to a 25% tax under Part XIII of the Income Tax Act (“the Act”) However, amounts paid to residents of certain countries with which Canada has a tax… Continue Reading
GOING NON-RESIDENT BEFORE GETTING A “GOLDEN HANDSHAKE” CAN SAVE BIG MONEY IN TAX FOR A CANADIAN!
If a highly paid executive will be getting a substantial severance payment (which, for the purposes of this posting, could include damages for wrongful employment; a negotiated severance payment; or one provided in the employment contract), moving to a sunny tax-haven can cut the tax bite by more than half! With increased tax rates starting… Continue Reading
BE WARY OF PITFALL WHEN DOING POST-MORTEM “PIPELINE” PLANNING FOR ESTATES WITH NON-RESIDENT BENEFICIARIES
The use of post-mortem “pipeline” planning is a popular technique aimed at avoiding double taxation in situations where there is a capital gain recognized on the death of a taxpayer who held a significant interest in the shares of a Canadian private corporation at the time of death. It can also apply in situations where… Continue Reading
CANADIAN TAX ISSUES WHEN TRUSTS DISTRIBUTE “CAPITAL DIVIDENDS” TO NON-RESIDENT BENEFICIARIES
Under subsection 83(2) of the Income Tax Act (“the Act”) a Canadian private corporation (“Canco”) can pay special dividends out of its “capital dividend account” (“CDA”). The CDA of a corporation may be derived from any of the following four sources: The tax-free portion of capital gains The tax-free portion of proceeds from the sale… Continue Reading
DEALING WITH 21 YEAR DEEMED DISPOSITION ISSUES FOR CANADIAN TRUSTS WITH NON-RESIDENT BENEFICIARIES
As a general rule, trusts resident in Canada are deemed to dispose of all of their assets every 21 years for proceeds equal to the fair market value of such assets at that time[1]. The end result is that if appreciated assets are in the trust at the end of the relevant deemed disposition date,… Continue Reading
CANADIAN TAX ISSUES WITH SOFTWARE ROYALTIES PAID TO NON-RESIDENTS
As a general rule, royalties paid to non-residents of Canada for the use of property in Canada would be subject to non-resident withholding tax under Part XIII of the Income Tax Act (“the Act”). This arises from the wording of subparagraph 212(1)(d)(i) of the Act. In the absence of a tax treaty applying, this tax… Continue Reading
DISTRIBUTIONS FROM CANADIAN TRUSTS OR ESTATES TO FOREIGN BENEFICIARIES CAN ENTAIL TAX NOTIFICATION AND CLEARANCE REQUIREMENTS
In certain cases, a distribution of capital by a trust[1] to a non-resident beneficiary will bring into play certain notification and tax clearance requirements found in subsection 116. As a general rule, a distribution of capital by a trust to a beneficiary is considered a “disposition” by that beneficiary of all or a portion of… Continue Reading
CANADIAN SOURCE INTEREST PAYMENTS TO NON-RESIDENTS GENERALLY TAX-FREE
A large percentage of countries that have income taxes levy withholding taxes on interest paid by residents of those countries to non-residents. Up until the end of 2007, Canada generally applied withholding tax under Part XIII of the Income Tax Act (“the Act”) on Canadian-source interest payments to non-residents. This general rule was subject to… Continue Reading
HOW CANADA TAXES REAL ESTATE GAINS OF NON-RESIDENTS
Like many countries. Canada taxes non-residents who realize gains on real estate located within its borders[1]. This will be true whether the real estate is capital property that is held for the purposes of earning from rental or a business; capital property held for personal use; or inventory of a business (e.g. where it… Continue Reading