Personal Tax -> Interest expense paid to a non-resident
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.
Revised: July 22, 2021
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca