International Tax

Canadian residents are taxed on worldwide income regardless of the source country, so non-treaty foreign income is fully taxable in Canada. You can still claim a foreign tax credit for tax paid to that country, but the credit is limited to the lower of (a) the foreign tax actually paid, or (b) the Canadian tax that would have applied to that same income. Without a treaty's reduced withholding rates, source countries often impose higher tax, meaning the foreign tax credit caps your relief. Careful structuring of investments and entities can mitigate but not eliminate the higher effective rate.

Under Section 247 of the Income Tax Act, Canadian corporations that engage in cross-border transactions with non-arm's-length parties must maintain "contemporaneous documentation": a written record prepared by the tax filing deadline that demonstrates the transactions were priced at arm's length. The documentation typically includes descriptions of the parties, transactions, functions performed, risks borne, comparable uncontrolled prices used, and the methodology applied (e.g., CUP, resale price, cost-plus, TNMM). Failure to maintain documentation exposes the company to a 10% transfer pricing penalty on adjustments, even if no tax was avoided. Form T106 must also be filed annually for transactions with non-arm's-length non-residents over specified thresholds.

When you cease to be a Canadian tax resident, you're deemed to have disposed of most of your property at fair market value the day before you leave, triggering capital gains tax on accrued but unrealized gains. This applies to public-company shares, mutual funds, foreign real estate, and most personally-held investments. Exceptions include Canadian real property, Canadian business assets, RRSPs/RRIFs, TFSAs, and registered pensions; these don't trigger immediate departure tax but have their own rules. You can elect to defer payment on the deemed gain by posting security, and you must file Form T1243 listing all property and Form T1244 to elect the deferral. Property worth more than $25,000 also requires disclosure on Form T1161.

Foreign dividends are taxed as ordinary income at your full marginal rate. They don't qualify for the Canadian dividend tax credit, which is the main reason eligible Canadian dividends are taxed more favourably. Foreign interest is treated identically to Canadian interest (fully taxable as ordinary income). Foreign capital gains use the same inclusion rate as Canadian gains and are taxed in Canada with a foreign tax credit for any tax withheld at source. The result: a Canadian dividend often produces noticeably lower after-tax income than a foreign dividend of the same gross amount, even before considering withholding.