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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 (CRA) 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".
CRA Non-Resident Tax Calculator
The online non-resident
tax calculator provided by Canada Revenue Agency calculates the current
Part XIII (non-resident) taxes payable on certain amounts paid or credited
to non-residents of Canada, based on information provided by the user.
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