Worldwide Individual Taxes Summaries——Canada（2001-2002）Worldwide Individual Taxes Summaries——Canada（2001-2002）
SIGNIFICANT DEVELOPMENTS
Until 2000, all provinces and territories except Quebec computed provincial income taxes as a percentage of basic federal tax (“tax on tax ” systems). Starting in 2000,five provinces switched to “tax on income” personal tax systems, with the others to follow in 2001. For the most part, the effects on rates and the amount of tax individuals will pay are modest.
Personal taxes decreased in 2000, and additional personal tax reductions are planned to take effect over the next five years. The inclusion rate for capital gains realized after February 27,2000, and before October 18,2000, decreased from three-quarters to tw0-thirds and it further decreased to one-half for capital gains realized after October 17,2000.
GENERAL NOTE
The following information is based on actual and proposed legislation as of January1, 2001. It is assumed the proposed legislation will become law.
TERRITORIALITY AND RESIDENCE
Individuals resident in Canada are subject to Canadian income tax on their worldwide income. Relief from double taxation is provided through Canada’s international tax treaties and foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources. Nonresident
individuals are subject to Canadian income tax on income from employment in Canada, income from carrying on a business in Canada, and capital gains from the disposition of taxable Canadian property. Taxable Canadian property includes, among other things, real estate situated in Canada, capital property used in carrying on a business I Canada, and shares in
Canadian resident corporations that are not listed on a stock exchange.
In certain circumstances, shares in Canadian-resident corporations that are listed on a stock exchange, shares in nonresident corporations, and interests in nonresident trusts will be considered taxable Canadian property. Draft legislation that applies after October 1, 1996, extends
the definition of taxable Canadian property.
Individuals resident in Canada for only part of a year are taxable in Canada on their worldwide income only for the period during which they were resident.
Generally, an individual is resident in Canada for tax purposes if there is a continuing relationship between the individual and Canada. In determining an individual’s residence, all of the relevant facts must be considered, such as the maintenance of a dwelling suitable for year-round occupancy,
credit cards, bank accounts, social and business ties, and personal property. Citizenship, domicile, and residency under the tax
laws of another country are not relevant. Ordinarily, individuals are considered to be resident where they maintain a fixed abode for themselves and their families. If an individual who, as mater of fact, is considered not
resident of Canada sojourns(i.e., individual is deemed to be resident in Canada for that entire year.
GROSS INCOME
Employee gross incoem/ Salaries, wages, commissions, directors’ fees, and all other remuneration received by an officer or employee are included in income from employment. Canadian residents are taxable on worldwide income whether or not the income is remitted to Canada. Most fringe benefits
received or enjoyed in connection with employment are also taxed as employment income. New federal rules increase the attractiveness of employee stock options to acquire certain publicly traded shares. Foreigners working temporarily or permanently in Canada are eligible for special concessions for employment at a special work site or remote location. The rules may exempt from tax most amounts received as allowances for board and lodging, as well as transportation between the special work site and the employee’s principal place of residence.
Capital gains and investment income /No special concessions are available to short-term residents with respect to the taxation of capital gains and investment income. Dividends from Canadian corporations are grossed up by one-quarter for inclusion in income. A tax credit may then be claimed
for 16.67% of the dividend before the gross-up , which results in a net tax saving. Accrued interest income on most debt obligations must be reported annually.Draft legislation that applies to taxation years beginning after 2001 will change the tax treatment of interests held in foreign investment entities
(FIEs). In general, taxpayers subject to the new rules must include in income either their share of the income of the Fie or any change in the fair market value of the interest in the FIE from the previous year
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