elf@utcsri.UUCP (10/28/87)
I'm sure a subset of this set of questions has come up before, but I've just
recently plugged myself back into the net.
I have this friend (really!) who is currently a nonresident Canadian,
living in Switzerland. She/He has a number of tax questions which the Revenue
Canada people there are extremely cagey about answering. (You might wonder
what they've done to earn a nice foreign assignment but refuse to answer
straightforward questions, but I don't.) I will frame the questions in a
more abstract situation.
Suppose an individual earns $X from Canadian sources, but NOT taxed at the
source, and also suppose this individual, a nonresident Canadian living in
Switzerland, earns Y SFr, which is taxed at the (Swiss) source (just try
to avoid paying taxes at the source in Switzerland!). A simple situation.
Now, tax time comes along. In Switzerland, you don't fill out tax forms
if you're not Swiss--you just have the right to appeal if you feel too
much has been deducted.
Here are the questions:
(1) Should the $X income be declared in Switzerland? If so, what exchange
rate should be used?
(2) Should the Y SFr income be declared in Canada? If so, what exchange
rate should be used?
(3) Suppose X tends to zero (i.e., Canadian income drops off), what should
be reported on the Canadian tax form?
(4) What mechanisms do the Canadian authorities have to verify your Swiss
income?
I should put my $0.02 (0.021SFr) worth to say that the SFr is highly
overvalued relative to the $CDN (an accurate indicator: a Big Mac, large fries,
and small coke costs 8SFr in Switzerland compared to less than $4, whereas the
exchange rate puts 1SFr = $0.89). This is the setting for my last question:
(5) Suppose one declares his/her Swiss income on a Canadian tax form, and
that the Swiss income was taxed at 15%, say, at the source. Suppose
that when converted to Canadian dollars, the Swiss income combined with
Canadian income puts one in a 30% tax bracket, say. Does that mean that
the Swiss income is taxed an additional 15% payable to Canada?
I'd appreciate informed responses to any of these questions. It's probably
best to mail them to me. I'll summarise to the net if interest is expressed.
Thanks in advance.
--
Eugene Fiume, University of Toronto
elf@csri.utoronto (bitnet)
elf@csri.toronto.edu (csnet)
...!utcsri!elf (uucp)dave@lsuc.UUCP (11/01/87)
In article <5584@utcsri.UUCP> elf@utcsri.UUCP writes: >Suppose an individual earns $X from Canadian sources, but NOT taxed at the >source, You presumably mean "not having tax withheld at source", which is rather different from "not taxed". All Canadian-source income will normally be taxed. Employment income will be subject to source deduction, business income will not, and interest income should be subject to withholding tax at source. > and also suppose this individual, a nonresident Canadian living in >Switzerland, earns Y SFr, which is taxed at the (Swiss) source (just try >to avoid paying taxes at the source in Switzerland!). A simple situation. > >Now, tax time comes along. In Switzerland, you don't fill out tax forms >if you're not Swiss--you just have the right to appeal if you feel too >much has been deducted. > >Here are the questions: >(1) Should the $X income be declared in Switzerland? If so, what exchange > rate should be used? Assuming the individual is resident in Switzerland, I expect the answer is yes. Most countries tax residents on all income regardless of course. Exchange rate could be either the rate in effect at the time the income was realized or an average of rates through the year. >(2) Should the Y SFr income be declared in Canada? If so, what exchange > rate should be used? Assuming the taxpayer is not resident in Canada (your facts), the income is not subject to tax in Canada and so isn't declared here. If they're only out of the country temporarily, however, they might stil be resident in Canada for tax purposes (you can be resident in more than one country). If they are, they're taxable in Canada on all income. >(3) Suppose X tends to zero (i.e., Canadian income drops off), what should > be reported on the Canadian tax form? Again, it depends on whether the individual is resident in Canada or not. >(4) What mechanisms do the Canadian authorities have to verify your Swiss > income? The Canada/Switzerland tax treaty was signed on August 20, 1976. I don't have the text in front of me, but all tax treaties I've ever seen provide for exchange of information. So it's possible for either side to get information from the other. In practice, this doesn't happen a whole lot unless there's a major investigation underway. > >I should put my $0.02 (0.021SFr) worth to say that the SFr is highly >overvalued relative to the $CDN (an accurate indicator: a Big Mac, large fries, >and small coke costs 8SFr in Switzerland compared to less than $4, whereas the >exchange rate puts 1SFr = $0.89). This is the setting for my last question: All that tells you is that a meal at McDonald's is more expensive in Switzerland than in Canada. Unless there's currency control (and even with currency control, since black markets always spring up), the market provides, by definition, a measurement of the relative value of two currencies. > >(5) Suppose one declares his/her Swiss income on a Canadian tax form, and > that the Swiss income was taxed at 15%, say, at the source. Suppose > that when converted to Canadian dollars, the Swiss income combined with > Canadian income puts one in a 30% tax bracket, say. Does that mean that > the Swiss income is taxed an additional 15% payable to Canada? Maybe. The foreign tax credit and the tax treaty might work to alleviate this effect, depending on the source and type of income involved. If any substantial amount of money is involved, you should speak to a tax expert to determine how best to classify the taxpayer's residence, types of income, etc., and explore how to make best use of the treaty provisions and the foreign tax credit. >I'd appreciate informed responses to any of these questions. It's probably >best to mail them to me. I'll summarise to the net if interest is expressed. I've posted this since I doubt there are too many other tax experts on the net who are likely to express an opinion (jms, you still out there?) David Sherman, BA, LLB, LLM Income Tax Consultant -- { uunet!mnetor pyramid!utai decvax!utcsri ihnp4!utzoo } !lsuc!dave Pronounce it ell-ess-you-see, please...