What you need to know about Canada UK Double Tax Treaty Agreement (DTA) Explained
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We have a new website for British people and Canadians who wish to be tax-efficient whilst moving countries.
The Canada UK double tax treaty agreement (DTA) is for Canadians and British people moving between Canada and the UK who wish to avoid paying twice.
The Canada-UK DTA is essential for those who pay income taxes and wish to ensure they don’t pay twice.
Understanding the treaty between Canada and the UK is important if you work, invest, or live in both countries.
What are the basics of the Canada UK treaty?
Protocols signed on 15 April 1980, 16 October 1985, 7th May 2003, and 21 July 2014 amended the Canada-UK double taxation treaty.
It was first in effect (entered into force) on 1st January 1976.
DTAs are created between two countries to define the rules for a resident of both countries.
DTAs can be complex and are created to try and ensure that an individual can claim tax relief on the same income in two different countries.
What changes were made to the Canada UK treaty in 2014?
The Canada UK double taxation treaty came into force on 21 July 2014 with the enactment of the Protocol & Interpretative Protocol.
The important new arrangements were an attempt by the governments to clamp down on the avoidance of tax evasion.
Amendments were made to articles in the Canada UK tax treaty relating to business profits, shipping and air transport, associated enterprises, dividends, interest, royalties, the exchange of information and mutual agreement procedures.
In the UK, the convention took effect in respect of:
* withholding, on amounts paid or credited on or after 01 January 2015
* income and capital gains gains, for any year of assessment beginning on or after 06 April 2015
* corporation tax, for any financial year beginning on or after 01 April 2015
The convention took place in respect of:
* withholding, on amounts credited or paid on or after 01 January 2015
* other Canadian taxes, for any year beginning on or after 01 January 2015
Do you pay more tax in Canada or the UK?
According to the Organisation for Economic Co-operation and Development (OECD), as a percentage of GDP total tax taken in Canada is nearly 40%, while in the UK, it is less than 35%.
The 1978 the DTA was modified by the Multilateral Instrument (MLI).
The modifications made by the MLI are effective for taxes withheld at source on amounts paid or credited to non-residents from 01 January 2020.
The DTA covers the following:
– Income taxes
– Income, corporation, capital gains, petroleum revenue and development land tax in UK & Northern Ireland.
How long can UK citizens stay in Canada?
UK citizens can visit Canada for up to six months without a visa, but to stay for a longer or permanent period, they must fill out an application.
Foreign nationals who want to work or live in Canada must obtain temporary work permits and apply for temporary and permanent residence.
Suppose you stay longer than six months under the eTA programme, and your stay has not been extended by Citizenship & Immigration Canada. In that case, you will lose your travel authorisation and cannot use the eTA for future trips.
UK businesses that operate in Canada
A third protocol to the Canada UK Income Tax Convention was signed on 07 May 2003 to include the following amendments:
* The capital gains article was amended to prevent double charges when a Canadian resident moves to the UK. Only gains accruing after emigration can be taxed in the United Kingdom for specific properties held during emigration.
* The royalties article was amended to exempt from withholding taxes payments for computer software, patents and certain know-how payments.
What if I am dual resident in Canada & the UK?
If an individual works for a UK employer but is a dual resident and spends their time working in the United Kingdom and Canada, it is important to determine where they are treaty residents if they work in two jurisdictions.
The individual may be considered a treaty non-resident. The Employment Income Article of the Canada UK DTA usually restricts the liability to UK workdays only.
Income tax would only be due to HMRC for the days the individual worked in the United Kingdom.
This scenario is typical when a British ex-pat is employed on a local contract, whilst their family have remained at their primary residence in Europe and spent 3-4 days in the UK.
If an individual is considered a treaty non-resident in the United Kingdom, they are only liable for tax where the income has arisen from UK-based activities.
How to claim treaty residence under the DTA
An individual who believes that may be a resident in Canada and the UK must make a claim for treaty residence via a DTA relief claim.
There are many rules, requirements and tests which need to be applied correctly to ensure that the correct tax residence statuses can be applied.
