Treaties stop you from paying tax twice on the same income

One of the purposes of treaties is to ensure that you do not end up in a situation where you are taxed in both countries.  They do this by the countries negotiating which one gets to keep your tax dollars.

Two important things to remember:

One, most treaties do not relieve withholding tax (that tax you have to pay before you file a tax return to calculate the actual amount owing).  But most countries have a mechanism to reduce that amount of withholding if you are not going to owe tax in that country.

Two, if you have paid tax that under the treaty you should not have paid you cannot claim a foreign tax credit for that amount.  You need to go back to the first country and request a refund of overpayment.

Tax on Wages Canada vs US

Canada and the US are very close on taxes on wages according the the OECD in their latest publication on Taxing Wages.  The calculations for taxes on wages includes both income taxes and social security.

A single person making average wage pays 30.8% of their wages in Canada, whereas in the US that same person would pay 29.4% of their wages out which isn't too great of a difference.

A one-earner family with 2 children earning the average wage pays 13.7% in taxes in the US and 18.3% in Canada.

On the other hand, if you earn lots (167% of average), the tax bite in the US is 34.6% and only 32.9% in Canada.

So I guess the lesson here is that you it's okay to be a resident of Canada if your wages are high enough:J

New Proposed HST Place of Supply Rules

I am not a fan of GST.  Not because I don't like tax - but because it is not logical.  How and when you charge GST does not always make sense - you have to confirm everything to be sure.

Well, now BC and Ontario are moving to the HST on July 1, 2010 (which will likely happen regardless of Mr. VanderZalm's efforts).

So the Minister of Finance has come out with some tentative rules on place of supply for HST to make things "easier" for GST registrants.

Remember that these rules are tentative - MOF is awaiting comments. . . but here's what at stake so far for consulting services.

If the supplier of the services has obtained a recipient's address in Canada, the supply will be considered to be at that address.

If there is no address in Canada, it will be where the services are primarily (more than 50%) performed.  If performed equally in two or more provinces it will be considered to be in the one with the higher rate of HST.

If the services are location specific (i.e. at a convention centre) - then they will be considered to be supplied at that location.

Of course, computer-related services are slightly different.  Those are considered to be supplied where the person who acquires the service is ordinarily located.

The main thing that was removed in all of the proposed new rules is the negotiation aspect.  That is good news  - if these rules go forward, it is the services themselves that matter not where the contract was signed.


And, of course, all of the above might be overridden if the services are supplied with tangible or intangible personal property - this is why the GST/HST drives me crazy.