The purpose of writing this book, entitled “How Canada Taxes Foreign Income” is particularly for the benefit of foreign tax lawyers, accountants, tax planners, and immigrants (new or potential) to Canada to have a basic understanding of Canada’s tax system with particular emphasis on Canada’s concepts and schemes of taxing Canadians and new immigrants having foreign business and investment activities.

The Canadian tax system does not interfere with normal active business, either domestic or foreign. Canadians are taxed only when they received distributions in the form of dividends and capital gains from these business and investment activities.

With respect to inactive, or better known as passive, business income such as investment business income in the form of interest, rent, royalties, dividends, management fees, etc., such income will be treated differently if it is earned from foreign jurisdictions.

As Canada is among the top of countries having the highest income tax rates, Canadians are tempted to invest offshore in low tax jurisdictions especially in tax havens where no tax or low tax is in practice. Investment overseas can take many different ways and forms. Accordingly, there are different provisions in the Canadian Income Tax Act specifically to deal with each and every one of them.