International tax provisions in the Canadian government’s budget 2015, released April 21, provide withholding tax relief to non-resident employers whose employees work in Canada for short periods of time and tighten an antiavoidance rule applicable to captive insurance companies. The Harper government’s plan would also simplify Canada’s foreign asset reporting system.
Non-resident employers would no longer need to withhold amounts on account of the income tax liability of a non-resident employee working in Canada that expects to be exempt from Canadian tax under a tax treaty and that works in Canada fewer than 90 days in a 12 months period. The government explained that the measure is designed to relieve administrative burdens as the waiver system currently available for such cases has been criticized as being inefficient.
The goverment plan also strengthens an existing antiavoidance rule in Canada’s foreign accrual property income (FAPI) regime designed to prevent Canadian taxpayers from shifting income from the insurance of Canadian risks to a foreign affiliate resident in a lower-tax jurisdiction.
The government said that while existing antiavoidance rules were amended in Budget 2014 to prevent avoidance of the FAPI regime through insurance swaps, taxpayers have dodged the amended rule by having the affiliate receive consideration with an embedded profit component based upon the expected return on the pool of Canadian risks in exchange for ceding its Canadian risks. The proposal to clarifies that these arrangements give rise to FAPI, the government said.
Budget 2015 would also simplify the foreign asset reporting system in cases where the total cost of a taxpayer’s specified foreign property is less than $250,000.
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