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Interest Expense Paid to Non-Residents

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Personal Tax -> Interest expense paid to a non-resident

Interest expense paid to a non-resident by a person resident in Canada

Income Tax Act s. 212(1)(b)

Interest paid to a non-arm's length non-resident

If interest expense is paid by a person resident in Canada to a non-arm's length non-resident, in most cases a withholding tax of 25% (Part XIII tax) must be deducted from the payment and remitted to the government.  The rate of tax may be reduced under a tax convention (treaty) between Canada and the recipient's country of residence.  For more information see the Canada Revenue Agency publication T4061  NR4 - Non-Resident Tax Withholding, Remitting and Reporting.

Interest paid to an arm's length non-resident

Effective January 1, 2008, no Part XIII tax is required to be withheld from interest payments made by a Canadian resident to a non-resident recipient with whom the payer deals at arm's length, other than payments ("participating debt interest") that are in effect a distribution of profits.  Interest on certain debt obligations ("fully exempt interest") is exempt from withholding tax even if it is paid to a non-arm's length person, or might be considered "participating debt interest".

 

Revised: February 19, 2014

 

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