The Hongcouver | 2014 may be a taxing new year for Hong Kong-Canada dual residents

Tax dodgers beware – a long-awaited tax treaty with Hong Kong came into effect in Canada last week with the new year.

On the one hand, the new treaty is intended to provide relief for those unfortunates who find themselves unfairly hit by double taxation, allowing payments in one jurisdiction to be offset by those in the other. But it also targets the tax evaders who seek to claim Canadian residency for its convenience and social benefits, while paying only Hong Kong’s much lower rate of tax. It’s unlikely that many dodgers would opt to structure things the other way around, given Hong Kong’s maximum personal tax rate of 17 per cent, versus 43.7 per cent for a British Columbia  resident and 42.16 per cent in Ontario.

Among the other key points:

The treaty targets capital gains on immovable property – say, real estate purchased and resold in Canada by HK residents – specifying that gains be taxed in the location of the property.

The withholding tax on dividends sent from Canada back to Hong Kong is slashed, hopefully inspiring investment in Canada by Hong Kong firms or mainland Chinese companies with HK subsidiaries. Investors with a 10 per cent or greater holding in a firm would face only a 5 per cent withholding tax from Canada’s taxman. That’s down from the present 25 per cent.