Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
7-910481
United States vs Citizens Working and Livina in Canada
This in reply to your memorandum of February 15, 1991 in which you requested confirmation as to whether the comments in our memorandum dated September 4, 1990 (copy attached) concerning individuals who are dual residents (a person who is liable to tax in each country by virtue of residence or domicile therein or any other criterion of a similar nature) of Japan and Canada applies to dual residents of Canada and the U.S. You described a Situation where a U.S. citizen is a deemed resident of Canada and a factual resident of the U.S. and is receiving interest income from a Canadian source.
Our comments in the September 4 memorandum apply equally to a dual resident of Canada and the U.S. or Canada and any other country where the person would be considered a resident of that other Contracting State for purposes of interpreting that particular income tax convention and that convention restricts Canada's right to tax a particular source of income. In the situation provided, where the U.S. citizen is considered a resident of the U.S. by virtue of Article IV of the Canada - U.S. Income Tax Convention, Canada's right to tax such interest income would be limited to 15% and our comments in the September 4 memorandum concerning the calculation of Federal and Provincial tax apply.
We understand your administrative concerns with such a computation of tax but from a technical basis we are of the opinion that no alternative exists.
In our September 4 memorandum we stated that the amount of tax which related to the Canadian interest income could be determined using the following formula:
| Net Canadian Interest Income Taxable Income |
x |
Total Federal and Provincial Taxes Payable |
= |
Portion of Tax Relating Interest Income |
After a further review it is our opinion a more accurate formula should read as follows:
| Net Canadian Interest Income Taxable Income |
x |
Total Federal and Provincial Taxes Payable |
= |
Portion of Tax Relating Interest Income |
*Paragraph 3(a) of theIncome Tax ActPlus all Taxable Capital Gains
*The aggregate of all positive sources of income for the year (e.g. employment, business, property, section 56, taxable capital gains, etc.
| An example of the tax reduction under this revised formula is as follows: |
| Canadian Employment Income |
|
$59,000 |
| Interest Income from Canadian sources, |
$1,100(A) |
|
| Less: Expenses incurred to earn the Canadian interest income |
100 |
1,000 (B) |
| Net Income (as well as paragraph 3(a) income) |
|
$60,000 (c) |
| Deduction in computing taxable income |
|
10,000 |
| Taxable Income |
|
$50,000 (D) |
| Total Federal and Provincial Taxes Payable @ 40% Rate D X 40% = $50,000 X 40% = |
|
$20,000 (E) |
| Taxes Payable Relating to Canadian Interest Income B X E = $ 1,000 x $20,000 =C $60,000 |
|
$ 333 (F) |
| Limitation under paragraph 2 of Article 11 of the Convention 10% X A = 10% X $ 1,100 = |
|
$110 (G) |
| Tax ReductionF - G = $333 - $110 = |
|
$223 (H) |
| Note: The tax reduction should be apportioned on a reasonable basis between the Federal and Provincial taxes payable. |
| Revised Taxes Payable E - H = $20,000 - $223 = |
$19,777 |
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1991
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