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Jyoti (anonymous) MadanCA Team edited answer

I am living in India and a tax resident of India. I am not a tax resident of Canada.

But I have a Savings account in Canada. On which I get Bank interest. This is my only source of income in Canada. No other income in Canada like Dividends, Rental Income etc.

Now is this Bank interest subject to 0% withholding tax or 25% withholding tax or 15% withholding tax (India & Canada tax treaty).

This new rule from CRA since 2008 is really confusing me. Apparently it says withholding tax on Bank interest since January 1, 2008 is eliminated as a Bank is Arms length entity. Am I correct in this interpretation of mine? That my bank should not hold back 25% of the interest paid as Withholding tax as a non resident?

Also what T5 slip should they issue me after I tell them I am a non resident. Regular T5 slip or NR4-T5 slip. Regardless of any withholding tax, should they give me a T5 or NR4-T5 slip.

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Major changes to paragraph 212(1)(b) – Elimination of withholding tax on arm’s length interest paid or credited to non-residents effective January 1st, 2008.

Prior to the amendments, paragraph 212(1)(b) was structured so that interest payments were taxable, other than those set out in a series of subparagraphs. In a significant revision of the non-resident withholding tax, paragraph 212(1)(b) of the Act was amended.

The new provision exempts from tax any interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at arm’s length, other than those payments (“participating debt interest”) that are in effect a distribution of profits or the like. As well, interest on certain debt obligations (“fully exempt interest”) is exempt even if it is paid to a non-arm’s length person or might be considered “participating debt interest”. This retains an important aspect of the previous rule.

Interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at non arm’s length will be taxed at the statutory Part XIII tax rate of 25% or the reduced rate of Part XIII tax eligible under a tax convention between Canada and the beneficial owner’s country of residence, where applicable.