Canada Tax Treaty

[victorWard]

Thanks for reading my post.

I've read several other posts on the subject, but I can't seem to find a consensus regarding Canadian income tax on income earned in Japan.

I live/work in Japan and my company withholds income tax from each paycheque. How do I declare this income to Revenue Canada? Can I claim a credit for the entire amount (citing the Canada-Japan tax treaty) or do I only claim the Japanese tax paid as a tax credit?

If I'm missing something else, please let me know.

[happygolucky]

Thanks for reading my post.
If I'm missing something else, please let me know.

If you are a resident in Japan and a citizen of Canada then you should declare your taxes in Japan and don't need to declare that income in Canada.

You can have yourself declared a non-resident by filling out some forms, but a lot of people don't bother with that step.

If you are a short term expat and planning to be out of Canada for less than a year then your tax situation gets a bit more complicated.

[Walking Turd]

Thanks for reading my post.



I've read several other posts on the subject, but I can't seem to find a consensus regarding Canadian income tax on income earned in Japan.

I live/work in Japan and my company withholds income tax from each paycheque. How do I declare this income to Revenue Canada? Can I claim a credit for the entire amount (citing the Canada-Japan tax treaty) or do I only claim the Japanese tax paid as a tax credit?

If I'm missing something else, please let me know.

Why are you thanking me for reading your post before I read it?

Why don't you guys do yourselves a favor and just join us down here in the Lower 48? The IRS would take good care of you, treat you just fine.

[Maxintyo]

The tax treaty, Article 15 mentions that "salaries, wages and other similar remuneration derived by a resident of a contracting state in respect of an employment shall be taxable only in that contracting state unless the employment is excised in the other contracting state. If the employment is so excised, such remuneration as is derived therefrom may be taxed in that other contracting state."

Article 15 is for employed persons except directors.
For directors, Article 16 is prepared.

Regarding your case, if you are a resident in Japan, The contracting state will mean Japan.


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[vancitylove]

The tax treaty, Article 15 mentions that "salaries, wages and other similar remuneration derived by a resident of a contracting state in respect of an employment shall be taxable only in that contracting state unless the employment is excised in the other contracting state. If the employment is so excised, such remuneration as is derived therefrom may be taxed in that other contracting state."

Article 15 is for employed persons except directors.
For directors, Article 16 is prepared.

Regarding your case, if you are a resident in Japan, The contracting state will mean Japan.

plain english please

[victorWard]

Ok, so how do I know if I'm a resident of Japan? I live/work in Japan. However, I have bank accounts in Canada which pay interest. I haven't changed my mailing address to Japan, so the banks don't withhold any tax.

So, if I have income in Canada and Japan how does that effect my residency? Can I report Canadian income in Canada and Japanese income in Japan?

Thanks!

[YokohamaYamate]

Ok, so how do I know if I'm a resident of Japan?

http://www.nta.go.jp/taxanswer/english/12001.htm

[Kevbodian]

http://www.nta.go.jp/taxanswer/english/12001.htm

That's probably the most cryptic thing I have read all day.

[LeftVanCity]

plain english please

Money you earned in Japan is only taxed in Japan if you are below the level of a Director.

[91Coupe]

I was under the impression that you need to pay the difference in Canada.

If you pay 15% tax in Japan and 20% in canada you will be required to pay the remaining 5% tax to canada.

Just apply for non resident status. I did that and had it effective from the time I left Canada so I actually got a refund for that year.

A brief history:

I worked in japan for one year in 1999 and when i came back I applied for student loans... Some BS happened after that and the court told me that I had to file taxes for the year I was gone and ended up paying a semesters worth of tuition to the govt... It sucked.

[Jakebullet]

I was under the impression that you need to pay the difference in Canada.

If you pay 15% tax in Japan and 20% in canada you will be required to pay the remaining 5% tax to canada.

Just apply for non resident status. I did that and had it effective from the time I left Canada so I actually got a refund for that year.

A brief history:

I worked in japan for one year in 1999 and when i came back I applied for student loans... Some BS happened after that and the court told me that I had to file taxes for the year I was gone and ended up paying a semesters worth of tuition to the govt... It sucked.

Sounds like you were out of the country for less than 12 months. If the stay is longer then there is no problem with the dual taxation.

[91Coupe]

Sounds like you were out of the country for less than 12 months. If the stay is longer then there is no problem with the dual taxation.

Yea it was about a week less than a year.

[LeftVanCity]

ugh so it looks like you DO have to pay tax on income earned abroad while still a Canadian Resident. Should have filed for non-resident status before I left as this affects me. ____ beans.

http://www.cra-arc.gc.ca/tx/nnrsdnts...mprry-eng.html

So 91coupe was right in that you end up paying the difference on what you are taxed abroad vs at home. You claim a tax credit on the lower of the two:

the foreign income tax you paid; or
the tax otherwise due in Canada on your net income from that country.

The lower likely being Japan.

On that note, anyone not filed taxes on Japanese Income? What's the worst that could happen? My employer isn't doing it for me as, in effect, I'm a contracted and independent. I'll be leaving within a year and likely not coming back...

[91Coupe]

ugh so it looks like you DO have to pay tax on income earned abroad while still a Canadian Resident. Should have filed for non-resident status before I left as this affects me. ____ beans.

http://www.cra-arc.gc.ca/tx/nnrsdnts...mprry-eng.html

So 91coupe was right in that you end up paying the difference on what you are taxed abroad vs at home. You claim a tax credit on the lower of the two:

the foreign income tax you paid; or
the tax otherwise due in Canada on your net income from that country.

The lower likely being Japan.

On that note, anyone not filed taxes on Japanese Income? What's the worst that could happen? My employer isn't doing it for me as, in effect, I'm a contracted and independent. I'll be leaving within a year and likely not coming back...

Thats what I thought. Thats why I applied for non-resident status. The good thing is they will back date it to the day you left canada, so you will only have to pay taxes for the time you were in canada. If you were working and paying taxes until you left, that should mean a refund.

[jrp]

ugh so it looks like you DO have to pay tax on income earned abroad while still a Canadian Resident. Should have filed for non-resident status before I left as this affects me. ____ beans.

http://www.cra-arc.gc.ca/tx/nnrsdnts...mprry-eng.html

So 91coupe was right in that you end up paying the difference on what you are taxed abroad vs at home. You claim a tax credit on the lower of the two:

This is the same with virtually every country in the world now.

But also there's probably nothing to stop you applying for non-resident tax status now (I don't know Canadian law, but most countries have similar arrangements and procedures in this mater).

To get non-tax resident status in most countries you just have to provide a bit of proof like:

• showing you don't have permanent ties to your old country - like a house (even if it's only been a rental and you've never lived in it), a tenancy agreement, a wife still there, a business, or a job contract etc.
• That you're out of the country for a certain amount of time (eg 325 days out of the last 12 months).
• It helps if you can show long term employment contracts from your new tax residency country (Japan), marriage certificates, tenancy agreements - that kind of stuff.
• Sometimes even if you don't fit all of these requirements you can still get it (the place of abode and the time out of country are normally not negotiable though).

And as long as you're not retarded and tell them you plan to return to Canada or something stupid like that, then you should get non-tax residency status.

And once you've got the status, the Canadian tax department will usually back date the status to when you first left the country permanently - so no auditing your Japanese income for Canadian taxes at a later date - or penalties for not filing your Canadian returns on time [late filing penalties] - or for not paying the tax owed, the amount that you did not even know you owed, when you should have [late payment penalties].

But it can also happen that you just never show up on the Tax man's radar (which has usually been the case as up to now as there is/was no automatic sharing of this information without a manual request by one of the tax agencies). Up to you if you want to take the risk or not.

[LeftVanCity]

This is the same with virtually every country in the world now.

But also there's probably nothing to stop you applying for non-resident tax status now (I don't know Canadian law, but most countries have similar arrangements and procedures in this mater).

To get non-tax resident status in most countries you just have to provide a bit of proof like:

• showing you don't have permanent ties to your old country - like a house (even if it's only been a rental and you've never lived in it), a tenancy agreement, a wife still there, a business, or a job contract etc.
• That you're out of the country for a certain amount of time (eg 325 days out of the last 12 months).
• It helps if you can show long term employment contracts from your new tax residency country (Japan), marriage certificates, tenancy agreements - that kind of stuff.
• Sometimes even if you don't fit all of these requirements you can still get it (the place of abode and the time out of country are normally not negotiable though).

And as long as you're not retarded and tell them you plan to return to Canada or something stupid like that, then you should get non-tax residency status.

And once you've got the status, the Canadian tax department will usually back date the status to when you first left the country permanently - so no auditing your Japanese income for Canadian taxes at a later date - or penalties for not filing your Canadian returns on time [late filing penalties] - or for not paying the tax owed, the amount that you did not even know you owed, when you should have [late payment penalties].

But it can also happen that you just never show up on the Tax man's radar (which has usually been the case as up to now as there is/was no automatic sharing of this information without a manual request by one of the tax agencies). Up to you if you want to take the risk or not.

<----Alpha male risk taker. I won't be gone a year, and too many ties to prove non resident...

[codepoet]

old-thread, reviving

I'm going to be relocating to Japan in the near future. I'm weighing up the pros and cons of declaring myself a non-resident, or retaining my residency. My understanding is that unless declaring myself a non-resident, i need to file Canadian taxes, but that I can declare a tax-credit for the amount paid in Japan.

What's not clear to me is if that encompasses all of the various taxes I would pay in Japan or not, such as the 4%+6%+income-tax. I believe my combined tax-rate will be approximately 40% in Japan, which basically matches my Canadian tax-rate, so in the end I could maintain residency (and potentially a property that I rent out while gone), and probably have a tax-wash due to the tax-treaty between the two countries.

Does anyone know which parts of the taxes paid in Japan can be credited against taxes owed in Canada on my "world-wide" income?

Thank you.

[shonanfred]

old-thread, reviving

I'm going to be relocating to Japan in the near future. I'm weighing up the pros and cons of declaring myself a non-resident, or retaining my residency. My understanding is that unless declaring myself a non-resident, i need to file Canadian taxes, but that I can declare a tax-credit for the amount paid in Japan.

What's not clear to me is if that encompasses all of the various taxes I would pay in Japan or not, such as the 4%+6%+income-tax. I believe my combined tax-rate will be approximately 40% in Japan, which basically matches my Canadian tax-rate, so in the end I could maintain residency (and potentially a property that I rent out while gone), and probably have a tax-wash due to the tax-treaty between the two countries.

Does anyone know which parts of the taxes paid in Japan can be credited against taxes owed in Canada on my "world-wide" income?

Thank you.

I think you'll have a hard time getting non-resident status while owning a rental property.
Fred

[codepoet]

I think you'll have a hard time getting non-resident status while owning a rental property.
Fred

Hi Fred, I don't own the property yet. If there is no clear tax advantage to declaring myself a non-resident, then I can at least look at property in Canada (either now or in the future) - this is why i'm wondering about comparitive tax-rates, and whether i'd really end up having to pay in Canada, due to Japan tax rate being similar (?).

Scenario 1:
I retain residency status in Canada (even though I don't live here anymore). I pay 40% taxes in Japan. I would've paid 43% in Canada. So I end up owing 3% to Canada? In this scenario, declaring non-residency is of small value, as opposed to having freedom and flexibility to retain bank accounts, own property (used as rental income while out of the country), etc.

Scenario 2:
I pay 35% taxes in Japan. I would've paid 43% in Canada. So I end up owing 8% to Canada? In this scenario, the amount owing starts to become substantial, so declaring non-residency may make more financial sense.

I think fundamentally, this boils down to a few factors:
1. Is the tax 'delta' going to be large enough to be painful. If not, then resident vs. non-resident may not matter, and retaining residence has some benefits.
2. Is it of interest to the expat to not have to file Canadian taxes on an ongoing basis. If not, then non-resident is the right route, although you need to apparently "sever ties" to your home Country.

I guess my question resolves down to whether the tax rates for middle-to-upper income folks is roughly equivalent between the two countries.

Hope that makes sense (2nd post!).

Brian.

[shonanfred]

Are you planning on staying here for the long-term?
Will you be making enough to worry about this (8% of $1 is 0.08, 8% of something larger is more (yes, I am a financial genius))?
Fred

[jrp]

I don't know the Canadian tax system at all, but I'd guess it is similar to most commonwealth countries. So just a couple of points for to think about.

'Residency' of a country and 'tax residency' are two different things. You can be a non-resident of a country (like living in Japan) but still be a 'tax resident' of another country (like Canada).

You do not get to decide if you are a 'non-resident' for tax purposes - the tax department does. I would think you will have to request from the Canadian tax department to become non-resident for tax purposes (this is different than giving up your citizenship or other residency). The tax department will either let you be non-resident for tax purposes, or not.

For the Japanese tax perspective have a look at this link from the Japanese Tax Authority. It's pretty straightforward:

2011 INCOME TAX GUIDE FOR FOREIGNERS
http://www.nta.go.jp/tetsuzuki/shink...011/pdf/43.pdf

Page one has a table showing who pays what in terms of foreign income. If you're looking at buying a rental property in Canada and planning on staying in Japan for more than 5 of the next 10 years, then expect to pay a lot of tax. Although you could possibly buy a Canadian house through a Family Trust to avoid this (I don't know about Family Trust law in Canada so you'd have to ask others about that).

[codepoet]

Are you planning on staying here for the long-term?
Will you be making enough to worry about this (8% of $1 is 0.08, 8% of something larger is more (yes, I am a financial genius))?
Fred

Yes, it will matter . Looks like I just need to figure out the tax rate. Not sure if "regional" taxes in Japan are part of the treaty coverage ss a writedown in Canada.

[Super Grover]

I don't know the Canadian tax system at all, but I'd guess it is similar to most commonwealth countries. So just a couple of points for to think about.

'Residency' of a country and 'tax residency' are two different things. You can be a non-resident of a country (like living in Japan) but still be a 'tax resident' of another country (like Canada).

You do not get to decide if you are a 'non-resident' for tax purposes - the tax department does. I would think you will have to request from the Canadian tax department to become non-resident for tax purposes (this is different than giving up your citizenship or other residency). The tax department will either let you be non-resident for tax purposes, or not.

For the Japanese tax perspective have a look at this link from the Japanese Tax Authority. It's pretty straightforward:

2011 INCOME TAX GUIDE FOR FOREIGNERS
http://www.nta.go.jp/tetsuzuki/shink...011/pdf/43.pdf

Page one has a table showing who pays what in terms of foreign income. If you're looking at buying a rental property in Canada and planning on staying in Japan for more than 5 of the next 10 years, then expect to pay a lot of tax. Although you could possibly buy a Canadian house through a Family Trust to avoid this (I don't know about Family Trust law in Canada so you'd have to ask others about that).

Of course the underlined bit is the key point. If you come here and stay for 5 years plus a day, life changes -- a lot. Basically, if you are someone earning say, $80,000-$100,000 over there, it may be slightly better over here, but then you have to factor in higher rent (possibly), high healthcare payments and other adjustment costs. If you are a high income earner, I would stay there. One more thing to consider will be the new taxes increases that seem likely to be implemented here. From a tax/investment persepective, I think the safest place to be is Alberta.

There are so many things to factor in that it is hard to assess well. Accountants are worth it in such cases!

[ben_jarmin]

This is the form for declaring. http://www.cra-arc.gc.ca/E/pbg/tf/nr73/nr73-11e.pdf

Pay attention to the "Personal Ties" section, and cut as many of those as you can.

I personally did not fill this form out. But, before coming to Japan, I put my health insurance on standby, cancelled my credit card, closed my bank accounts, signed my car over to another title holder and made sure there was sweet FA for the money grabbing arse bandits on my hard earned cash in Japan. You must be out of Canada for 183 consecutive days or more per fiscal year to be deemed outside of the country.
To anyone concerned, if you don't want to pay any taxes, it's worth doing all you can to cut your ties.

[codepoet]

Let me resummarize why i'm interested in this topic.
1. I would like to retire to Canada some day
2. I might want to buy property now, or in the near future, even though I'm living abroad

I understand fully that:
1. I do not get to decide if i am considered resident or non-resident, that is up to CRA. However, there are things I can do to help be considered a non-resident (cutting all financial ties, etc.)
2. If I maintain Canadian residency while working in Japan, i need to file tax returns in Canada.
3. Due to the Tax Treaty between Canada and Japan, I can use the taxes paid in Japan as a tax-credit.

So, for me, it is obvious what happens if i do not buy property here in Canada, and if I *do* end up as non-resident. Less paper work yearly, and no tax obligations in Canada.

What is *not* obvious so far, is related to #3 above. If my tax-rate in Japan is sufficiently high, then the tax-credit amount would offset any owed taxes on Canada side. This would mean that while I still have the burden of yearly paper work, i wouldn't (necessarily) have the burden of any tax obligation in Canada.

Make sense?

I'm not sure that the tax-credit amount on Canada side can include ALL taxes paid in Japan ('federal'+municipal+etc), or if it only includes the 'federal' portion. I'm also not sure what my overall tax-rate will be in Japan, and what my overall tax rate would be in Canada based on the same income (maximum 45%?). For example, if I only pay 40% tax-rate in Japan, but I would've been at 45% in Canada, then I've got an owing of 5% on Canada side.

I guess the final solution will be to become a non-resident at the moment, live in Japan for a year, get an understanding of tax-rate, compare that to what it would've been in Canada for same amount of income, and then determine the *exact* tax obligation on Canada side.

Thanks.