I am a dual citizen, born in Canada but left for the UK at age 3, where I've lived ever since. Now I am working in Canada temporarily for the first time, so don't require a work visa. I am to receive an ongoing royalty for this work, to be paid to me as a limited company registered in the UK, by the Canadian company in C$. How do I avoid paying tax in both countries, and can I avoid the necessity of getting a Social Insurance number in Canada, or must I bite the bullet?
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In order to answer your question, I would need to know the nature of the "work" and the nature of the "royalties", to determine which provisions of the Canada-UK tax treaty apply.
Various treaty terms may also depend on whether you have a "fixed base" in Canada, or whether the company you are contracted with has a "fixed establishment" in Canada where you work.
From what you said, I believe your UK limited company has contracted with the Canadian company, rather than you as an individual. If that's not correct, I would need to know that, as well.
Hello sir. Thank you for your response. The 'work' is scenic design in the entertainment industry, and the royalties are ongoing monthly payments for the continued use of my design after I have returned to the UK, all of which will be paid to my company. Neither I nor my company has a Canadian address (fixed base), but the company with whom my company is contracted is an entirely Canadian based company.
I'm not sure whether it applies, but I intended to ask whether, when you are in Canada, you are working at a fixed location belonging to the Canadian company.
I'm heading out shortly, so I probably won't be able to put togther an answer until tomorrow (11 February) morning (UTC -8). I'm almost certain you've given me enough information to give a definite answer, but I cannot complete it before I head out.
I am indeed working at a fixed location belonging to the Canadian company. Thank you
OK, it's fairly complicated. To begin with, under the treaty, you are a "resident" of the UK even if you were to work in Canada for an extended period of time; there's one case where 5 years was ruled to be a temporary assignment....If you were an "artiste", your immediate income is taxable in Canada, under Article 16.If not, then, under Article 14, paragraph 1, last clause of the first sentence, it's taxable in Canada only if "(you have) a fixed base regularly available to (you) in (Canada) for the purpose of performing (your) activities."For the royalties, Article 12, paragraph 5, has a similar wording which seems to make the royalites taxable in Canada under Article 14.It looks as if you need to get your company a Canadian tax ID number (not a SIN).Unfortunately, I can't find much case law on the precise definition of "fixed base". The Canada-US treaty has a 2007 protocol clarifying the defintion, but the Canada-UK treaty doesn't have that provision. If it turns out that it's not your fixed base, for some reason, then immediate income is not taxable in Canada and royalties would be subject only to a 10% withholding in Canada, which you can get a credit for on your UK taxes.This answer isn't as complete as I would like, but it's the best I can do at the moment.Update: http://www.cra-arc.gc.ca/E/pub/tp/ic75-6r2/ic75-6r2-e.pdf has Canada's interpretation of the treaty, and it adds that a (US) LLC is not a US resident under the treaty, unless it elects to be taxed as a corporation. Although it's mostly specialized to the Canada-US treaty, it may provide additional guidance.Arthur Rubin40952.6398629282
Tax preparer with 23 years experience, including US/Canada tax returns.