Canadian International Taxation: Income Tax Rules for Residents

By George Gonzalez

Are you a Canadian resident who is planning to invest in overseas markets, or is already doing so? If so, there are numerous income taxation rules that you should know about.

 

In this book you'll learn about:

• The four phases of internationalization in an individual's "tax life"
• Two key fundamentals that establish how international activities are taxed
• The special rules that are unique to international activities, including:
  • Foreign tax credit rules
  • Foreign dividend income taxation
  • Foreign trust and foreign estate income taxation
  • Foreign Accrual Property Income (FAPI) rules on Canadian-owned foreign corporations
• Foreign activity information reporting requirements imposed by the CRA
• The "departure year" rules and the so-called "departure tax" that would apply if you plan to become a non-resident of Canada in future

 

With the knowledge gained by reading this book, you can ensure that you comply with income tax and information reporting obligations, avoid potentially steep penalties from failure to comply with rules, and potentially minimize the income taxes related to your international activities.

 

This book is written for Canadian residents. Canadians who no longer reside in Canada, or are planning to relocate to another country in future, may also be interested in my other book, Canadian International Taxation: Income Tax Rules for Non-Residents.

 

Length: 52 pages

• Language: English
• Publisher: GCGCPA Press
• Release date: Sep 24, 2022
• ISBN: 9781777771034

Book preview

Cover_Taxation_Residents_eBook.jpg

Copyright © 2022 George C. Gonzalez

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by reviewers, who may quote brief passages in a review.

ISBN 978-1-7777710-3-4 (ebook edition)

ISBN 978-1-7777710-5-8 (paperback edition)

Book design by Judy Westcott, University of Lethbridge Printing Services

eBook layout by Jan Westendorp, Kato Design and Photo

Published by GCGCPA Press

272-1500 14th Street SW

Calgary, Alberta T3C 1C9

The information provided herein is believed to be accurate and reliable as of the date of publication. Tax laws are complex and subject to frequent change, however. The author and publisher cannot accept any liability for the tax consequences that may result from acting based on the contents of this book. Any tax planning points suggested in this publication should be acted upon only after consulting with your tax advisors.

Contents

About this Book

About the Author

Preface

Chapter I. Introduction

A. Phases of Internationalization

B. Provincial Taxes

Chapter II. Two Key Income Tax Fundamentals

A. Tax Residency

1. Residency in General

2. Residency Tests

a. Factual Residence

b. Deemed Residence

3. Provincial Residency

B. Tax Treaties

C. Chapter II Summary

Chapter III. Income Taxation of Residents

A. Taxation Based on World Income

B. Foreign Tax Credit

C. Foreign Dividend Income

D. Foreign Trusts

1. General Trust Taxation Rules

2. Trust Residency

3. Taxation of a Resident Beneficiary of a Non-Resident Trust

E. Foreign Estates

1. General Estate Taxation Rules

2. Estate Residency

3. Taxation of a Resident Beneficiary of a Non-Resident Estate

F. FAPI – Paying Tax on Your Foreign Corporation’s Income

G. Foreign Activity Information Reporting

1. Form T1135 (Foreign Income Verification Statement)

2. Form T1134 (Information Return Relating to Controlled and Not-Controlled Foreign Affiliates)

3. Form T1141 (Information Return in Respect of Contributions to Non-Resident Trust, Arrangements or Entities)

4. Form T1142 (Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust)

5. Form T106 (Information Return of Non-arm’s Length Transactions with Non-residents)

6. Information Reporting Forms are Not to Be Ignored

H. Chapter III Summary

Chapter IV. Income Taxation in the Departure Year

A. How the Departure Tax Works

B. Election to Defer Payment of the Departure Tax

C. Election to Treat Non-Taxable Property as Taxable for the Departure Tax

D. Chapter IV Summary

Chapter V. Conclusion

About this Book

Are you a Canadian resident who is planning to invest in overseas markets, or is already doing so? If so, there are numerous income taxation rules that you should know about.

In this book you’ll learn about:

The four phases of internationalization in an individual’s tax life

Two key fundamentals that establish how international activities are taxed

The special rules that are unique to international activities, including:

Foreign tax credit rules

Foreign dividend income taxation

Foreign trust and foreign estate income taxation

Foreign Accrual Property Income (FAPI) rules on Canadian-owned foreign corporations

Foreign activity information reporting requirements imposed by the CRA

The departure year rules and the so-called departure tax that would apply if you plan to become a non-resident of Canada in future

With the knowledge gained by reading this book, you can ensure that you comply with income tax and information reporting obligations, avoid potentially steep penalties from failure to comply with rules, and potentially minimize the income taxes related to your international activities.

This book is written for Canadian residents. Canadians who no longer reside in Canada, or are planning to relocate to another country in future, may also be interested in my other book, Canadian International Taxation: Income Tax Rules for Non-Residents.

About the Author

George Gonzalez is an international tax consultant and university professor. He provides tax planning and tax compliance services to individuals and small business clients, and is a professor of tax and accounting at the University of Lethbridge in Alberta.

During his professional career George has worked for the international tax department of a Big Four public accounting firm, the international audit department of a multi-national financial services firm, and operated his own tax practice to serve individual and small business clients with their tax planning and compliance needs. He has worked in the United States, Hong Kong, Japan, the Dominican Republic, and Canada where he now resides.

George earned his PhD in Accounting from the University of Pittsburgh and his Bachelor of Science in Accounting from the University of Florida. In addition to Canadian International Taxation: Income Tax Rules for Residents, he is also the author of Canadian International Taxation: Income Tax Rules for Non-Residents and Study Supplement for Canadian Income Taxation. George can be reached through his web site at www.gcgtax.ca.

Preface

Canadian investors are among the most internationally aware citizens of the world. This is due to a variety of reasons. One is the proximity of Canada to the United States, the world’s economic engine for many decades. Canadian exports to and imports from the U.S. represent a significant portion of Canada’s economy.

Given a relatively small population (about 38 million at this writing¹), Canada has one of the highest gross domestic products (GDP) in the world: about US$1.7 trillion,² placing it in the top ten among country GDPs. All that money flowing through the country