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Question

Hi

I moved to Canada 10 years ago with my young family. When we moved I still had some assets, notably some shares in my father’s Indian company.

I receive regular dividends in the company totaling between $30,000 and $50,000 per year. On every payment they send me the company withholds 25%. I don’t file an Indian tax return to report this income and I haven’t been reporting it on my Canadian tax return (I know now that this is wrong).

Other than the dividend income I have between $60,000 and $70,000 of self employment income per year. I know it’s going to be expensive, but can you help me fix this mess?

Regards

XXXXXX

Answer

Hi XXXXXX

Thanks for the email. Based on my reading of the Canada-India Tax Treaty the correct withholding rate on dividends paid to you is 25%. If you held these shares in a company, and your ownership was over 10% you would have the ability to have this withholding reduced to 15%.

My biggest concern is that you have yet to report the dividend on your Canadian tax return.

You will want to correct your prior years tax returns to report the Indian dividends. You will however be able to get a foreign tax credit up to 25% for the withholding. This should come close to eliminating any additional tax that would be owing for Canadian purposes.

Assuming your ownership was over 10% you would want to also submit forms T1134 for all respective years. T1134 reports the ownership and selected financial information for the company each year. The penalty for late filing this form is as high as $2,500 plus interest.

Good news however, if you file the tax returns above and late T1134 forms under the voluntary disclosure program CRA will accept the late disclosure and waive any potential penalties. This is assuming of course that you qualify for the program under the selected criteria.

Please give me a call at 250-381-2400 so that we can discuss in more detail what would be required in filing your late submissions under the VDP program.

Cheers

Phil
phil@hutcheson.ca

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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