9 December 1983 Income Tax Severed Letter

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.

December 9, 1983

K.B. Harding

XXXX

This is in reply to your letter of October 27 wherein you requested we provide you with an opinion concerning several questions outlined in your letter.

Your letter indicates that you are a Canadian citizen, who has resided in the United Kingdom for the past twenty-eight years and are considering returning to Canada.

We will reply to your questions in the order in which they were presented in your letter:

1) Provided you are a resident of Canada for the purposes of the Canadian Income Tax Act (Act) and the Canada-United Kingdom Income Tax Convention (Convention), you will be subject to tax in Canada on your worldwide income, including the pension which you receive from the United Kingdom. In addition, the United Kingdom has the right to withhold tax on such payments equal to 30 per cent of the gross payment. In order to avoid double taxation, Canada will provide you with a foreign tax credit equal to the lesser of the income taxes paid by you to the United Kingdom Government in respect of your pension income and the Canadian tax that is otherwise payable by you in respect of that pension income.

If the pension is one which is not paid out of public funds of the United Kingdom or Northern Ireland or the funds of any local authority in the United Kingdom in respect of services rendered to one of the levels of government, the first $10,000 Canadian dollars or £5,000 pounds sterling, whichever is the greater, shall be exempt from withholding tax in the United Kingdom. We would suggest you contact the payor of your pension to determine whether the exemption will apply to you.

2) On the assumption that you are a Canadian resident for tax purposes, you will be taxed on your worldwide income including your pension income in accordance with 1) above and other investment income earned in Canada. If you receive foreign investment income from the United Kingdom, the dividends and interest will be subject to 15 per cent withholding tax in that country. However, as with pension income, the foreign investment income will be included in income and you will be permitted a foreign tax credit to the extent permitted under the Act to ensure you are not subject to double taxation.

3) Since a Canadian resident is required to report his worldwide income, the comments in 1) and 2) above will continue to apply with respect to pension and investment income. Where a Canadian resident carries on business in Canada, the profit will be subject to tax in Canada at the individual's progressive tax rates. If the business is carried on by a corporation, the corporation will be subject to tax at corporation rates and the individual will report as income any salary, wages, dividends, etc., which he receives from the corporation.

In order to determine residency under the Convention, we are enclosing a copy of Article IV of the Convention which determines residency under the Convention in cases where an individual is considered a resident of both states. Enclosed is a copy of Interpretation Bulletin IT-221R Z which outlines the criteria which is used by Canada to determine the residence of an individual.

We are also enclosing a copy of Article XVII for your perusal and trust we have satisfactorily replied to your questions.

Yours sincerely,

Director Provincial and International Relations Division

Enclosures KBH/jb