How Canada Taxes Foreign Income was written to serve as a reference for foreign tax lawyers, accountants, tax planners, and immigrants (new or potential) to Canada.  The book provides a basic understanding of Canada's tax system, with particular emphasis on Canada's concepts and schemes of taxing Canadians and new immigrants who are involved in foreign business and investment activities.

The Canadian tax system does not interfere with normal domestic or foreign business activities.  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 'passive', business income such as investment business income in the form of interest, rent, royalties, dividends, management fees, etc., such income is treated differently if it is earned from foreign jurisdictions.

As Canada is among countries with the highest income tax rates, Canadians are tempted to invest offshore in low tax jurisdictions, particularly in tax havens where no tax or low tax is in practice.  Overseas investment can take many different forms.  Accordingly, there are different provisions in the Canadian Income Tax Act that specifically deal with each form of investment.

All Canadian and foreign accounting and tax professionals with potential Canadian immigrant or resident clients wishing to invest offshore should be familiar with the above rules.  This will ensure that responsible and accurate information is provided to the client, and that a comprehensive tax plan is made before the client immigrates to Canada or invests overseas, as the case may be.  The above tax provisions can be extremely complex, and are discussed in detail in specific chapters of the book.

For the reader's convenience, the initial chapter of each tax regime (e.g. Foreign Affiliate Rules, Offshore Trust Rules, and Foreign Investment Entity Rules) is written in simple English, describing the concept and how the rules work.  It is then followed by a chapter that provides technical explanations of the same topic, with references to the Canadian Income Tax Act.  The purpose of this chapter is to assist Canadian and foreign accountants and tax practitioners in applying these rules to their specific situations and circumstances.

Topics Covered
Topic	Section - Chapter Title
1.  Investment through foreign affiliates and partnerships (chapters 2 and 3)	Section 95 - Foreign Affiliate Regime and FAPI Rules
2.  Investment through offshore trusts (chapters 5, 6 and 7)	Section 94 - Offshore Trust rules
3. Foreign investment in the form of share holdings less than 10% each in any foreign corporations. (chapters 9, 10 and 11)	Section 94.1 - Foreign Investment Entity Rules
4.  Investment through foreign loans and indebtedness. (chapter 12)	Section 15(2) - Shareholders' Loans Section 18(4) - Thin Capitalization Section 17 - Debts Owed by Non-Resident Entities
5. Investment through foreign affiliates and related companies using transactions under non-arm's length terms. (chapter 13)	Section 247 - Transfer Pricing Rules
6. Investment through schemes designed to avoid immediate Canadian tax or avoid paying Canadian tax at all. (chapter 14)	Specific Anti-Avoidance Rules Given at Different Sections of the Act. Section 245 - General Anti-Avoidance Rules (GAAR)
7. Annual filing of information returns regarding offshore foreign assests and investments (chapter 15)	Section 233.1 - 233.7 - Foreign Reporting Rules
8. Emigration of taxpayers (chapter 16)	Section 128.1 - Immigration Rules

Note: The above sections are referenced to the provisions of the Canadian Income Tax Act.

Legal Notes and Disclaimer

The material presented in this book deals with complex matters; references contained therein reflect laws and practices which are subject to change.  For this reason the information and material provided in this book should not be relied upon as a substitute for specialized advice from tax professionals in connection with any particular matter or situation.  

Although the material contained in this book has been carefully prepared, the author and any persons involved in the preparation of the material accept no legal responsibility for the contents of this book or for any consequences arising from its use.  

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