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Know About Canadian Cross-border Taxation
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International or Cross-Border Tax Services can be a tricky thing to deal with, since taxes on certain things might be higher or lower than others. Tax is not only the concern of the big business units but also people with offshore saving accounts or in any way liable to international tax. In some countries, food is taxes, while in others it is not.
In the United States, the income tax system is based on either citizenship or residence. This is not the case in Canada. Canadians living or working in the United States may find themselves taxed on their “world income” in both Canada and the U.S.
The U.S. tax system, administered by the IRS, is complex with many compliance and reporting requirements that are quite different from the Canadian system, administered by the CRA.
Engaging tax specialists with expertise in both the U.S. and Canadian tax systems may not longer be an option for most Canadians that have to deal with these complexities – not an option, just good sense.
The Canada-United States Income Tax Convention and other amending protocols are intended to prevent “double taxation” and enhance cooper ration between the two countries. The 5th Protocol (set of changes) to the convention was designed to:
• Eliminate source-country “withholding” tax on cross-border interest payments
• Allow tax payers arbitration to otherwise insoluble double tax issues
• Ensure that there is no double taxation on immigrant gains
While the convention may provide for certain tax exemptions, this does not include exemption from filing income tax returns id the U.S. Failure to file as prescribed in the U.S. can result in the exemptions sought being denied by the IRS and other penalties being imposed.
While the American economy has been struggling, the Canadian economy has remained stable, and it is now easier than ever for smart shopping Canadians to take advantage of the American dollar. Besides the value of the American dollar versus the Canadian one, another financial benefit for the shopper is the lower sales tax rate in the United States.
If you are a Canadian Resident, then you are taxed on your worldwide income and filing of returns to the Canadian Revenue Agency (CRA) is mandatory. If you are a non-resident, the taxation policy is different and you have to declare all Canadian income while filing the returns. But to know how to file your taxes, you first need to determine your residency status for tax purposes.
If you are doing some offshore tax planning, by investing some money offshore, then you should be aware that almost all countries have signed tax treaties with Canada, and if you are a Canadian Resident, then income from these investments will also be calculated and considered as income and will have to be declared while filing the income tax returns. But if you are a non resident of Canada, there are options for you to do some cross-border tax planning, but it is always better to avail the services of an income tax expert to help you.
Josep Guardiola is a chartered accountant who practices as an independent tax consultant. He also author of Offshore Tax, in this article he provides cross-border tax tips. For more information you can visit Taxca.com.
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