Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Path: utzoo!utgpu!utcsri!utegc!utai!musocs!micomvax!mnetor!lsuc!dave From: dave@lsuc.UUCP Newsgroups: can.general Subject: Re: Canada/Switzerland Taxation Message-ID: <2119@lsuc.UUCP> Date: Sun, 1-Nov-87 02:13:53 EST Article-I.D.: lsuc.2119 Posted: Sun Nov 1 02:13:53 1987 Date-Received: Fri, 20-Nov-87 04:46:03 EST References: <5584@utcsri.UUCP> Reply-To: dave@lsuc.UUCP (David Sherman) Distribution: can Organization: Law Society of Upper Canada, Toronto Lines: 87 Summary: world income generally taxed only to residents 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...