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Investment Taxation for Expats in Canada

Submitted: January 2014

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in Canada and abroad
  • dividends, and
  • capital gains.

 

Interest

For residents, interest income from Canadian sources is treated as ordinary income and taxed as such. The payer of amounts above C$50 will generally provide a T5 slip at the end of February detailing the interest paid. This can be attached to your tax return. If you are a resident you will also have to pay tax on interest from outside Canada, and may be subject to withholding taxes in the country of origin. If there is a suitable tax treaty, the tax rate can be significantly reduced. Non-residents taxpayers are subject to a 25% withholding tax on interest, which can be reduced if a suitable tax treaty exists. Certain forms of interest, for example Government bonds interest, and interest paid on debt related to a property outside Canada are fully exempt.

 

Rental Income

For a resident, rental income is taxed as ordinary income and must be reported with your tax return using form T776. The form allows you to claim a generous set of allowable expenses to arrive at the final taxable amount. There are more details regarding expense claims here. If you are a resident, rental income from a country outside Canada must be reported on your tax return. If the property is valued at more than C$100,000, it must also be reported on a special form T1135. You may be able to claim a foreign tax credit, for any tax paid abroad on the profit from renting the property, using form T2209 for federal tax and T2036 for provincial tax.

For non-residents, gross rental income from a Canadian source is generally subject to withholding tax at a rate of 25%. This tax is deducted from the rent due by your lessee, who will send both you and the CRA copies of an NR4 form detailing both the gross rent and the tax withheld. You can also choose to be taxed on your net rental income, allowing you to claim expenses in the same way as a resident. This involves a bit more admin, but may save you some money. There is information on this here.

 

Dividends

For residents, dividend income from Canadian sources income is taxed as ordinary income and must be reported with your tax return. However because the money to pay the dividend has generally already been taxed at the company level, there is an arrangement to reduce the tax paid by an individual. This involves initially increasing the amount of the dividend (grossing up), and then applying a reduction in the amount of tax payable via a tax credit. This applies to both federal and provincial taxes. There are calculators available online to do this for you.

Non-resident taxpayers are subject to a 25% withholding tax on dividends, which can be reduced if a suitable tax treaty exists.

 

Capital Gains

For both residents and non-residents, capital gains are taxed as ordinary income and must be reported with your tax return. However only 50% of the actual gain is taxable.

 

 

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