2015-0600261M4 Tax treaties & non-taxation of permanent residents

Principal Issues: Why does Canada allow certain new permanent residents to benefit from the Canadian health care system and education system without them paying tax in Canada as a result of a tax treaty that Canada has with the Republic of China.

Position: General comments given regarding the taxation of residents and non-residents, and the impact of tax treaties on taxation in Canada.

Reasons: See below.

Author: El-Kadi, Randa
Section: 250(5) - deemed non-resident

August 26, 2015

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your correspondence of July 13, 2015, about the taxation of individuals whose families are new permanent residents in Canada.

I understand your concern that some individuals might be taking advantage of the Canadian health care and education systems. Please note that healthcare and education are provincial responsibilities. However, I can give you information about tax treaties and income tax in Canada.

In general, the taxation of an individual’s income in Canada is based on whether the individual is a resident or non-resident of Canada. Residents of Canada are taxable on their income from all sources inside and outside Canada. Non‑residents are taxable only on their income from Canadian sources. However, the Canadian taxation of income follows the terms of tax treaties conventions or agreements (commonly referred to as tax treaties) that Canada has with many countries. Canada’s tax treaties are part of a worldwide system of income tax conventions designed to avoid double taxation and prevent tax evasion. These tax treaties specify how an individual’s residency is determined and how much each country can tax income like wages, salaries, pensions, and interest.

An individual who, for income tax purposes, is resident in Canada and in another country with which Canada has a tax treaty may be considered resident in the other country and not in Canada based on the provisions of the tax treaty. This determination can have an effect on the taxation of that individual’s income in Canada. If you need more information, I invite you to read Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status, or Guide T4058, Non-Residents and Income Tax, available at www.cra.gc.ca/tx/tchncl/ncmtx/fls/s5/f1/s5-f1-c1-eng.html and www.cra.gc.ca/E/pub/tg/t4058, respectively.

The Canada Revenue Agency is responsible for the administration of the Canadian tax system, but not for developing federal tax policy. The concern you raise relates to tax policy, which is the responsibility of the Department of Finance Canada. Therefore, you can write to Finance Canada, Tax Policy Branch, 90 Elgin Street, Ottawa ON  K1A 0G5.

I trust the information I have provided is helpful.

Yours sincerely,

Hon. Kerry-Lynne D. Findlay, P.C., Q.C., M.P.
Minister of National Revenue

Randa El-Kadi
(613) 670-9054
2015-060026

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