With this article, you will have an overview of international taxation. International taxation is vast and covers several aspects. Each of the sub-aspects will be the subject of a specific article, the purpose of this writing is to survey the scope of the subject.
What do we mean by international taxation?
First of all, it is necessary to define what is meant by international taxation at Effisca Tax. We define this subject as being all the tax specificities applicable to a non-resident doing business with Canada (and/or the United States), and also the impacts of a resident of Canada (and/or a American person (see our article for the definition of an American person) who does business outside of Canada (and/or the United States).
Basically, in international taxation, we involve another country (third country) than Canada or the United States. Since Effisca Tax has both Canadian and American tax expertise, international tax includes these two areas.
What does the expression “having business” mean?
When we mention “having business” with a third country, this includes having a job in another country, or holding assets there (investment, building, money, etc.) as well as receiving an inheritance from a resident in that other country.
We are also talking about people in business with clients in another country or people who receive income from a third country (pension income, dividends, etc.).
Finally, this category includes immigration (see Immigration and taxation: planning your arrival in Canada) and emigration from Canada (Read Leaving Canada: what you need to know). We will take these categories below and detail them a little more.
The Canadian and American perspective
It is important to specify that the expertise of your Effisca Tax specialist consists of the Canadian or American perspective of a situation, and that the aspects in the third country must be validated by a specialized expert in the other country.
For example, we are the right resource to tell you how a resident of Poland will be taxed in Canada if they earn income from Canada. But to find out how Poland will tax this income from Canada in Poland, you will need to contact a Polish tax expert. Conversely, we can support an American doing business in Poland and explain to him the impacts in the USA, but the impacts in Poland fall within the expertise of a Polish tax specialist.
Note that although we are experts in Canadian and American taxation, we have developed a knowledge of certain third countries more than others. We therefore have tax reflexes in France, for example, which sometimes allows us to better refer you to an expert from the third country.
Income from another country and foreign credit
This category includes income received by non-residents of Canada that originates in Canada as well as income received by residents of Canada from another country. The same logic applies in international taxation from the American point of view. We can therefore advise an American citizen who resides in Canada but who has an employer in China, for example!
A resident of Canada who earns income elsewhere in the world, or an American person who earns income outside the United States, will be taxable on this income in their country of origin. This income is sometimes also taxable in the country of origin (we speak of the source of income) which could create double taxation.
Danger of double taxation
The laws of Canada and the United States provide mechanisms to avoid this double taxation in the Act, through the tax treaties, etc., but it is not always possible to avoid additional taxes (read Foreign tax credit: not so easy to claim). Here are some interesting articles in this section:Income from French sources: what you need to know, Rental income in the United States: your tax obligations.
In some cases, the income is not taxable in the country of origin given an attractive tax-free treatment, but this income will still be taxed in Canada. Worse, some income is taxable in Canada each year, while it is also taxed on withdrawal (think of life insurance in France) resulting from double taxation. It is crucial to consult your tax specialist to identify these situations.
A non-resident who earns income in Canada or the United States will in some cases have to pay taxes under two different regimes. This includes the case of a resident of France who owns a rental property in Canada for example. Another example would be a former resident of Canada who now lives in Japan, but receives income from an employer pension plan while working in Canada.
Here are some articles that might interest you: Dividends to a non-resident,Rental income of non-residents of Canada, Does the section 217 election apply to you?, Non-resident of the United States: are you subject to US tax? (US-source income for a Canadian),Rental income in the United States: your tax obligations.
Holding assets abroad
One of the subjects for which we have the most requests for consultation concerns the T1135 form and the holding of assets abroad. A typical case is a resident of Canada from France who still owns bank accounts, buildings, investments, etc… In Canada you must report the possession of these assets under certain conditions, please read our article on this subject:Form T1135: declaring income from foreign sources. This involves declaring the holding of the assets, which is a separate obligation to declare the income derived from them.
Attention, if you also own shares of a foreign company in which you own more than 10% of the shares of the company, including the members of your family, you will also have to complete the T1134. These forms are very complex and require a specialist tax specialist. We can help you with this form. Our American customers who hold a Canadian company will have to fill in Form 5471 to fill out,please read our article about it.
Real estate tax
This category is also one of the most popular among our customers. Whether you own a rental property in Canada as a non-resident or earn rental income in the USA as a non-resident, you will get the help you need. You can also count on us when you sell a property in Canada (by a non-resident) or if you will sell a building in the USA.
Finally, our tax experts follow the new tax measures concerning the Underused Housing Tax. These measures target non-residents who buy properties in Canada that do not rent them continuously, or who rent them at a reasonable rent. Unfortunately, however, this measure also targets purely Canadian companies that own real estate!
Employment in another country
This category covers both Canadians working outside the country (either temporarily or permanently, both commuting and telecommuting) as well as foreigners working in Canada or the United States. Do you work from Quebec for an American employer? Are you touring the United States on behalf of a Canadian employer? We have the answers to your questions!
Do business in another country
Finally, many of our clients do business with foreign countries. It can be (among others) self-employed workers (read Social charges for self-employed workers abroad) or via an incorporated company.
It will be important for you to understand the concept of a permanent establishment and to fully understand your obligations (read Why apply for an IRS Individual Taxpayer Identification Number? Or Employees abroad: your obligations as an employer). Effisca has expertise in these areas and can advise you.
This article is an overview of the various subjects that constitute international taxation. We invite you to browse our website as many other topics are covered there. Do not hesitate to contact us if you can’t find the answer to your questions!