CHAPTER 08 Tax Considerations
TAX REPORTING
particulars of the transaction, and is entitled to obtain a certificate (commonly referred to as a “section 116 certificate”) from the CRA, upon satisfying the CRA that no Canadian tax is owing (e.g., because there is no gain or because any gain is exempt under an applicable tax treaty), by paying tax to the CRA on account of the non- resident’s ultimate tax liability or by posting acceptable security. In addition, any person, whether a resident or non- resident of Canada, acquiring taxable Canadian property from a non-resident may withhold and is liable to remit to the CRA 25% of the purchase price or, where the non-resident vendor provides a section 116 certificate, 25% of the amount, if any, by which the purchase price exceeds the limit indicated in the section 116 certificate. The 25% rate is increased to 50% for certain types of property, including depreciable property (e.g., machinery and equipment, and buildings). If the property is “taxable Québec property,” (e.g., real or immovable property or resource properties located in the province of Québec) an additional withholding applies, at a rate of 12.875% (30% where the 50% federal rate applies), and a separate certificate (equivalent to a section 116 certificate) must be obtained from the Québec tax authority. Failure to obtain a satisfactory section 116 certificate from the non-resident vendor or, alternatively, to make the withholding and required remittance, renders the purchaser liable for the amounts that should have been withheld and remitted. These requirements do not apply to certain excluded property, such as listed shares, units of a mutual fund trust, debt securities and any “treaty-exempt property” (as defined in the Tax Act). A purchaser is also exempt from the withholding obligation under section 116 in respect of the acquisition of taxable Canadian property (other than certain specified taxable Canadian property, such as depreciable property) from a non- resident person where (i) the purchaser concludes
Annual Tax Returns Canadian resident taxpayers are generally required to file an annual income tax return. Partnerships that carry on business in Canada or that are “Canadian partnerships” (i.e., partnerships whose members are all Canadian residents) are generally required to file an annual information return. Any non-resident corporation that carries on business in Canada directly or through a partnership and has a taxable capital gain or disposes of taxable Canadian property is required to file a Canadian tax return in respect of the relevant taxation year. A non-resident individual who, in a taxation year, has a taxable capital gain or disposes of taxable Canadian property is generally required to file a Canadian tax return in respect of that year, unless no tax is payable for the taxation year or a prior taxation year and either the taxpayer has received a section 116 certificate in respect of each disposition of taxable Canadian property during the year (as discussed below) or such dispositions were exempt from the section 116 certificate requirements. A non-resident individual carrying on business in Canada directly or through a partnership is also required to file a Canadian income tax return, but only in respect of a taxation year in which Canadian tax is owing by the non- resident on such business income. The filing obligation generally applies whether or not the non-resident is entitled to relief from Canadian taxation under an applicable tax treaty. Section 116 Certificates There is a reporting and tax collection mechanism that applies to dispositions of most kinds of taxable Canadian property by non-residents. A non-resident vendor must notify the CRA in writing of such a disposition, providing
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