If you are Canadian and thinking about working abroad or you are from another country and considering making Canada your new home for family and work, you’ll need to understand the tax treatment you’ll receive from the two countries involved. Canada maintains tax treaties with almost one hundred countries around the world, some large, some small.
The idea of a tax treaty is that you can legally avoid double taxation in circumstances where you would otherwise pay tax on the equivalent income in both countries. Usually, the planning behind a tax treaty decides how much tax is paid in one country and the level in the other. Tax treaties often cover pensions, wages, salaries and interest.
Look At An Example of a Treaty
As an example, let’s look at the tax treaty between Canada and Ireland as there is a high exchange of workers between these two nations. Most tax treaties are quite similar although if you are planning on making a move which involves use of a tax treaty, you will need to take professional advice to ensure you completely understand any taxation system you are entering.
It’s always a difficult time moving to another country, especially if you are taking family with you and maybe arranging schooling as well. Nevertheless, planning and information gathering is an immense task that you should start sooner rather than later so you are able to consider matters including:
- New personal relationships
- New job
- New living conditions
- New school
- Health care arrangements
- Tax arrangements
- Business start up planning
You shouldn’t base your taxation planning on this article; it’s here to help you decide which information you should go and find out more about.
At least you know a tax treaty exists between the two countries. Now it’s time to read all the documentation, making notes as you go along so you are able to ask the right questions later.
Domiciles And Residence
Domiciles and residence are two important concepts. Your permanent home is your domicile. It has nothing to do with nationality or tax residence. If you have no fixed expectation of moving to the other country, your domicile won’t change.
If you are moving to Ireland, in our example, but remain a Canadian for domicile purposes, your taxation will be paid on a remittance basis, even if you are noted as resident in Ireland. Only taxable work and money you bring into Ireland will be taxed there.
Residence is confirmed by legislation. If you spend 183 days or more in Ireland in a tax year or 280 days or more over two years, you will be considered tax resident in that country.
The main reason for this legal jargon is to show that you won’t be taxed in both countries. So as a Canadian, resident in Ireland and earning income in Canada, your Canadian government will charge a withholding tax against the income. That turns into a tax credit when you arrange your affairs in Ireland – so you don’t pay the tax twice.
Inheritance or Estate Taxation
Thinking ahead, Ireland applies what it calls Capital Acquisitions Tax on gifts and inheritances – remember there’s been no inheritance or estate tax in Canada since 1972. If you live in Ireland for five years you will be open to their taxation of Irish gift and estate taxes.
If you’re thinking of staying in Ireland for a long time (and are allowed to do so) you will need to learn their pay-related social insurance plans – regular contributions from salary which include a health levy. Ireland has a social security agreement with Canada. This means that any contributions you pay in either country are treated towards your final pension arrangements, wherever you take them. So either your Canadian Pension Plan counts over there or your Irish pension counts in Canada.
Essentially, you won’t pay tax on the same worldwide assets and income in both countries. One will offset against the other. It is imperative that you take serious accounting and taxation advice before considering such a move as the implications may be long term and not that friendly if you don’t plan properly.
Olivia Lennox is a personal finance writer and frequently writes on tax issues. She writes on behalf of a 0% balance transfer service and other consumer sites