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I know Canada and the UK have a tax treaty that is designed to prevent double-taxation. But I don't know if it extends to honouring the tax-free status of government-issued savings certificates.

Details:

I have some UK National Savings & Investments index-linked savings certificates which I purchased years ago (when I lived in the UK).

Then I emigrated to Canada and I'm now a citizen and permanent resident paying Canadian taxes (I no longer submit a UK return).

I am declaring the interest from these certificates on my Canadian tax return as 'foreign income - interest', but there is a box called 'income exempt under a tax treaty'.

How do I figure out if this is exempt or not?

Bill
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3 Answers3

1

In general, double taxation treaties work like this:

  1. You pay tax overseas on the income.
  2. You then declare the income locally and the tax that you have already paid.
  3. Your local tax entity then assesses that income for local tax, and deducts the amount you have already paid to the overseas tax entity.

So in your case, with the National Savings and Investments products you will still need to pay Canadian tax on your returns. If you were able to consolidate your investments into a form that only triggers tax when you withdraw your money (e.g. stocks / investment fund) and then move to the UK for at least 3 months to establish tax residency in the UK (and ensure that you also research and meet the requirements to disestablished as a tax resident in Canada) to cash out your investments and take advantage of the UK tax free allowances.

Michael Shaw
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-1

Form Canada DT allows you to apply under the UK/Canada treaty for relief at source from UK Income Tax on pensions, purchased annuities, royalties and interest.

Renalyn Olavario
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-2

Canadians pay tax on worldwide income. Generally the tax treaty is for when you have already paid tax in the other country. My guess is that you will have to pay tax, but its worth a try to find out.

You say that the investment is not taxable in the UK.

Method 1 The easiest way to get an answer to call Revenue Canada. Your call is anonymous and you can also choose to not have them record the call.

The first level people are not up to complex questions but they are required to pass you along to more senior people when they don't know the answer. The key is in how you ask the question.

e.g. "I would like to ask a question on the treatment of foreign bonds of a tax-free nature. Could you pass me to someone knowledgeable in this area, please?"

If they try to pawn off a made-up answer, press with "Could you please give me the specific article of the Tax Act you are referring to and any Information Circulars that pertain?"

Method 2 They do have a website and the search engine is pretty good, so you can start with that.

Method 3 Another route is claim $0 and write a note on the interest income line and then attach a letter to your return, explaining that your understanding is they are not taxable hence your claim of $0 and a copy of the Saving Certificate - or page from the website showing the Tax-free nature.

=========== Of course you may know of a British taxpayer who would like to buy them from you. You'll be subject to any capital gains on the sale.

Ian S
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