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Budget Brief for Canadian Expatriates

By: Arun (Ernie) Nagratha, CA

Edited By: C. Todd Trowbridge, CA

Trowbridge Professional Corporation

Chartered Accountants | Tax Advisors

The following is a brief outline of the items relevant to Canadian expatriates from the 2007 Federal Budget:

• The spousal/dependent credit is proposed to increase to $8,929, the same amount as the basic personal credit and will be tied to future increases in the personal amount going forward.  This will be relevant for non-resident Canadians who elect to file a Canadian tax return and claim personal tax credits in Canada on certain income earned from Canadian sources. 
• The federal government has indicated its intention to eliminate non-resident withholding tax on interest paid to non-residents of Canada who are resident in the US as part of forthcoming revisions to the Canada-US tax treaty.  Assuming that this withholding tax exemption in the revised Canada-US tax treaty is implemented as planned, the budget further proposes to extend the withholding tax exemption to non-residents of Canada regardless of their country of residence.  Note that the proposed elimination of withholding tax on interest paid to non-arm’s length non-residents is intended to be phased in over a three year transition period. This will have particular relevance to non-residents in lower or no tax jurisdictions who continue to own interest bearing investments in Canada as well as simplifying the reporting for US resident individuals with Canadian source interest income.
• The budget papers indicate that additional resources will be directed towards improving auditing and enforcing the Canadian tax system in relation to foreign income and cross border transactions.  They also indicate that there will be more emphasis placed on international tax avoidance cases and improving Canada’s ability to exchange information with other countries in order to improve compliance with Canadian tax law.  This will be particularly relevant for non-resident Canadians who have not properly complied with Canada’s tax law and encourage the voluntary disclosure of those who are liable for Canadian tax in prior years to bring their tax obligations up to date
• The budget proposes to increase the lifetime capital gains exemption from $500,000 to $750,000.  This measure may have relevance to individuals departing Canada who own shares in a Canadian-controlled private corporation and are subject to the deemed disposition rules as a result of ceasing Canadian residency.
• The budget proposes to allow pension income splitting, a doubling of the pension amount credit and an increase the age credit amount by $1,000.  These changes could provide significant benefits to expatriates who are considering repatriating to Canada for retirement.

Source:
CCH News Tracker – 2007 Federal Budget
Editorial comment on Notice of Ways and Means Motion Resolutions & Supplementary Budget Information

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