Are you a non-resident with a presence in Canada? A presence
could be defined as employees, businesses, subsidiaries,
investments or loans. If so, here are 10 tips and traps you should
consider.
1. Thin Capitalization Rules
Issue: A Canadian company capitalized by
non-residents cannot exceed a 1.5:1 non-resident interest bearing
debt to equity ratio in order to obtain an interest deduction and
avoid punitive Canadian tax consequences.
Planning: Attention must be given to complying
with the interest bearing debt to equity ratio. Consideration
should be given to converting debt into equity or making debt
non-interest bearing.
2. Back to Back Loan Rules
Issue: A Canadian subsidiary is financed with
an interest bearing loan from a U.S. corporation, which obtained
the funds by borrowing from a non-U.S. entity in the corporate
group. Even though the Canada-US Tax Treaty provides for an
exemption from withholding tax on interest in respect of related
party debt,
