Our firm has developed expertise with French nationals. As Quebec has a lot of affinities with our cousins in France, many French people are making the jump to Quebec to settle there. But many find themselves with tax problems in Canada because they do not fully understand what it means to have assets in France while residing in Canada. Many also do not know how to report French source income, as is the case for some pensioners from France living in Canada.
French source income
The first thing to know is that any income that comes from France is taxable in Canada for a tax resident of Canada. This is the rule of thumb, despite what the tax treaty sometimes seems to say. This is the case with rental income, income from dividends, interest, employment, etc. This is also the case for pension income; it must be declared even if a deduction from income is sometimes possible. This is unfortunately also the case with CEL, PEL, Livret Bleu, Livret Orange, Livret Jeune accounts, life insurance (see paragraph below), etc.
There is nevertheless a mechanism, quite complex for the neophyte, which allows the taxes paid in France on this income to be deducted against Canadian taxes on the same income. But the tax being quite high in Canada, it is usually not fully covered by French taxes. This is without counting the taxable income here, but tax-exempt in France.
In addition to having to report income earned outside Canada, regardless of the amount of income in question, there are also administrative requirements for disclosing ownership of assets abroad. Whether the asset generates income or not, if you exceed a certain threshold, you will have to list your assets and provide more information about them each year. Calculating the threshold is more complicated than you might think, especially for an immigrant, and some working people count and some don’t.
We invite you to consult our experts, because even the most seasoned accountants do not often master this specialty. In addition, company shares must be disclosed in a different form depending on the shareholder’s percentage participation.
Life insurance policies taken out in France
A particularity of France concerns life insurance. Indeed, our French clients talk about a very different life insurance from our Canadian life insurance. In Canada, life insurance is generally an insurance product that allows an owner to pay premiums and receive, on the death of the insured, a fixed death benefit.
In France, the term life insurance will be used to designate an insurance product that allows you to deposit savings and benefit from preferential tax treatment when withdrawing, while alive, sums that have been locked in for a certain time. For Canadian purposes, this type of life insurance is a regular investment taxable annually on any income that accumulates in the investment. This obviously creates potential problems of double taxation, not to mention the headaches caused by determining the values to be declared.
Watch out for penalties
The tax authorities impose severe penalties on non-declaration of foreign income and assets. Penalties can reach 200% of evaded taxes, and up to $2,500 in penalties annually on undeclared assets.
People who want to regularize can use a voluntary disclosure system. If certain conditions are met, it is possible not to pay the penalties, but only the evaded taxes and interest, which is a huge gain. Consult our tax experts to determine the best strategy to adopt in your situation.