Foreign property and interest

[Aryan]

I am a Permanent resident in Canada and I have some Fixed deposits in India (value approx. 110000 CAD). Do I have to declare this property on the tax return? Will I be taxed for the interest I received on these even if I pay tax in India for the same?

[TheTaxSmith]

Hey Aryan. You need to include the interest earned on foreign deposits on your Canadian return and then claim a foreign tax credit for the taxes you paid to India. That may reduce your Canadian tax.

[Aryan]

And according to the tax treaty between India and Canada I see the following:

"Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent of the gross amount of the interest."

 

Does this mean that In India I will be charged max 15 % of the interest as Tax? And that is the tax credit I receive in Canada?

[TheTaxSmith]

15% is the withholding amount. It is not the tax you eventually will pay based on your marginal tax rate. You can record the actual tax withheld by India as foreign tax paid and then the software will determine the available foreign tax credit on your Canadian return.

[Aryan]

Thanks! On the ufile online platform which section should I use to report this?

[TheTaxSmith]

Look for Foreign Income. I usually don't respond to specific software support and forms. Also as an additional comment you need to review the requirements as per T1135 for foreign property reporting should the cost of foreign property equal $100,000 or more. That reporting requirement attracts a huge penalty if you are off side with the rules.

[Aryan]

Sure Ill check .. I do have one tax related question .. when I check my indian account the banks deposit the interest either yearly or quarterly and the financial year in India is april to March.

 

So lets take an example of 2021 tax returns I am filling in Canada right now I can show what ever deposits happened in my account for that year but they havent been taxed yet and will be taxed in march 2022 in India. So at this point I don't have any amount withheld as tax in india for these deposits. Given this I will put tax withheld as 0 in canadian tax return. But then in march some tax will be applied on these in India so when can I use that as a tax deducation?

[TheTaxSmith]

Hi Aryan. That has always been an issue, due to interest payment dates, different tax year ends between countries. I suggest you use the date and year the interest was received in this case. So if the bank in India paid you in 2021 and withheld tax, even if it was part way through the year, then use that for your 2021 CDN returns. For the 2022 interest payment from India use that on your 2022 CDN return. CRA should not have any issues with that and it is easier for all to understand. Trust that helps.