Canadian tax discussion

It is always interesting to hear "armchair tax experts" providing the latest "Canadian Tax Rules". I only wish make sure you know the proper rules.

I'm not going to say who is wrong and who is right. I have been a tax preparer for over 20 years and as a permanent resident of Mexico I am now providing tax advice and preparation to Canadians living here.

Taxation is an ever changing world and and if you heard it last month it may not be relevant today.

Canada has a tax treaty with Mexico which many of you are ignoring.

The latest treaty was signed on September 12, 2006:

Article 10 provides that Dividends paid out of Canada to a resident of Mexico may be taxed by Canada up to a maximum of 15%

Article 11 provides that Arm's Length Interest  paid out of Canada to a resident of Mexico may be taxed by Canada up to a maximum of 10%

In December 2007 CRA issued the following amendment:

Major changes to paragraph 212(1)(b) – Elimination of withholding tax on arm's length interest paid or credited to non-residents effective January 1st, 2008.
Prior to the amendments, paragraph 212(1)(b) was structured so that interest payments were taxable, other than those set out in a series of subparagraphs. In a significant revision of the non-resident withholding tax, paragraph 212(1)(b) of the Act was amended.
The new provision exempts from tax any interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at arm's length, other than those payments ("participating debt interest") that are in effect a distribution of profits or the like. As well, interest on certain debt obligations ("fully exempt interest") is exempt even if it is paid to a non-arm's length person or might be considered "participating debt interest". This retains an important aspect of the previous rule.
Interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at non arm's length will be taxed at the statutory Part XIII tax rate of 25% or the reduced rate of Part XIII tax eligible under a tax convention between Canada and the beneficial owner's country of residence, where applicable.


Where is this 25% that some of you residents of Mexico quote? It is what happens if you live in a non treaty country

As I indicated earlier, last year's tax rules may not apply this year and vice versa. It is very important to be up to date when making statements about taxes. That is why there are tax consultants (preferably one with Canadian non resident taxation experience) also if you use an accountant make sure he is very conversant with Canadian/Mexico Tax laws and if you use an investment adviser make sure he/she also is conversant with Canadian/Mexico Investments.

I recently saw 2 non resident Canadian Tax Returns prepared by CPA's in Canada. Both had glaring errors. You may think your accountant knows all about non resident tax returns but your actual return is prepared by a clerk in his/her office and may not be thoroughly checked.

If any one would like an honest tax appraisal please PM me and I will set up a time to meet.

BTW all world income is taxable in Canada. I entered $10,000.00CND onto my Canadian non resident return and found out it was going to cost me about $1,600.00CDN in tax! That is why we have to file our "World Income Statement". Canada wants more tax.