| ROYALTIES
AND OTHER RENTS |
| RULES UNDER THE INCOME
TAX ACT |
| General Rules |
A non-resident to whom royalties or rents are paid or credited
by a Canadian resident is generally subject to Canadian
tax thereon under Part XIII at a rate of 25%.
In addition to amounts which are "royalties" and "rents"
in the traditional sense, this can apply to "similar payments"
(e.g. "licensing fees") as well as certain other amounts
(e.g. payments for services) which are calculated based
on production, sales, profits, etc.
Rents paid in connection with Canadian real property are
discussed separately under Real
Estate Rents.
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| Payments By Other
Non-Residents |
| Rents or royalties paid by a non-resident to another
non-resident may be treated as being paid by a Canadian resident
for this purpose, in the following circumstances: |
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| Rent For Use in Canada
Of Property |
| A non-resident who pays rent for the use in Canada
of property (other than railway rolling stock) is deemed, in
respect of the payment of such rent, to be a Canadian resident. |
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| Timber Royalties |
| A non-resident who pays timber royalties in respect
of a timber resources property or timber limit is deemed, in
respect of the payment of such royalties, to be a Canadian resident. |
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| Business Carried
On Principally In Canada |
| A non-resident whose "business was carried on
principally in Canada" in a taxation year is deemed to be a
Canadian resident, in respect of any amounts paid to another
non-resident, to the extent that they are deductible in computing
his taxable income earned in Canada. |
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| Manufacturing Or
Resource Activities |
A non-resident who engages in any of the activities
indicated below in a taxation year is deemed to be a Canadian
resident, in respect of any amounts paid to another non-resident,
to the extent that they are deductible in computing his taxable
income earned in Canada.
The activities that will bring a non-resident within the
scope of this provision are as follows:
- Manufacturing or processing goods in Canada,
- Operating an oil or gas well in Canada,
- Extracting petroleum or natural gas from a natural accumulation
in Canada, or
- Extracting minerals from a mineral resource in Canada
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| Exempt Royalties
And Rents |
There are a number of special rules that provide
that certain types of royalties or rents paid to non-residents
are exempt from Part XIII tax. These include:
- Copyright royalties paid in respect of the production
or reproduction of any literary, dramatic, musical, or artistic
work (but not payments in respect of films or videotapes),
- Payments for the use of railway rolling stock,
- Payments under bona fide cost sharing arrangements,
- Payments in connection with tangible property situated
outside of Canada,
- Arm's length payments deductible in computing income from
a foreign branch, and
- Aircraft leasing payments
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RULES UNDER CANADA'S
TAX TREATIES
Jurisdiction To Tax |
Canada's tax treaties generally allow Canada
to tax royalties and rents paid by Canadian residents to non-residents,
although complex sourcing rules will often come into play.
However, Canada's treaty with the United States now generally
exempts royalties in respect of computer software and certain
patents and information from taxation. This is also the case
under the treaty with France. In addition, Canada's treaty
with the Netherlands now generally exempts royalties in respect
of computer software from taxation. Furthermore, Canada's
new treaty with Germany, that was signed on April 19, 2001,
provides exemptions for certain royalties in respect of certain
computer software patents and know-how. |
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| Rates Of Tax |
Canada's tax treaties generally lower the rate of tax that
Canada may levy on royalties and rental (other than real estate
rental) payments to either 10% or 15%. The 10% rate applies
under Canada's treaties with France, Germany, Italy, Japan,
the Netherlands, Switzerland, the United Kingdom, and the
United States. |
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