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Tax Treaties
8-23-2016
Canada has tax conventions or agreements -- commonly known as tax treaties -- with many countries. The main purposes of tax treaties are to avoid double taxation and to prevent tax evasion. Tax treaties:
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define which taxes are covered and who is a resident and eligible to the benefits,
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often reduce the amounts of tax to be withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country,
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limit tax of one country on business income of a resident of the other country to that income from a permanent establishment in the first country,
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define circumstances in which income of individuals resident in one country will be taxed in the other country, including salary, self-employment, pension, and other income,
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may provide for exemption of certain types of organizations or individuals, and
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provide procedural frameworks for enforcement and dispute resolution.
If you are a resident of Canada and have questions related to how your foreign source income will be taxed in Canada or if you are a non-resident of Canada and have questions related to how your Canadian source income will be taxed in Canada you can contact the International Tax Services Office. To find out how your income will be taxed in the other country you should contact the foreign tax administrations.
Guidance on how a Canadian financial institution identifies accounts that must be reported to the U.S.
The agreement is strictly about government-to-government information sharing. If a financial institution applying the due diligence rules of the agreement determines that any of its account holders are U.S. persons, such as U.S. residents or U.S. citizens (including U.S. citizens who are residents or citizens of Canada), the financial institution must collect and report information on the account to the CRA in respect of that account holder. The CRA sends this information to the IRS under the existing provisions of the Canada-U.S. tax treaty on exchange of information. The information about the account holder that is collected and shared with the IRS includes the name, address, and, in most circumstances, the individual’s U.S. taxpayer identification number, and certain financial information about the account.
Under some circumstances, financial institutions may need to ask certain account holders for more information if their records show that the account holder may be a U.S. person. Financial institutions may also ask their clients to provide a self-certification to declare whether they are a U.S. person. Financial institutions are required to send to the CRA information on account holders who do not cooperate with requests for information. The information is similar to that information reported on U.S. account holders. The CRA then sends the information to the IRS.
The CRA has not developed a form for Canadian financial institutions to use in collecting information under the agreement. Instead, financial institutions can design solutions that are tailored to their particular businesses, as long as they get the required information.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. Mohammed Yasin, CPA,CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C.
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