Tax havens and tax treaties

Persons who are resident in Canada are subject to tax on their world income. Persons who are not resident in Canada are usually subject to Canadian tax only on their income from sources within Canada.

Tax treaties with other countries are intended to avoid having to pay tax in both Canada and the other country on the same income. They are also intended to prevent tax avoidance and evasion.

Significant steps have been taken to prevent the improper use of tax treaties. For example, treaties may now include specific provisions to deny benefits under a tax treaty where the results of a transaction would not be consistent with the objectives of the treaties.

For more information about international work about tax treaties, please visit the Organisation for Economic Co-operation and Development.

Tax havens

Generally, a tax haven can be described as a jurisdiction with no taxes or a very low rate of tax, a lack of transparency in the operation of its tax system, and a lack of effective exchange of information with other countries.

Tax havens usually also have strict bank secrecy laws. There is often little or no economic activity in a tax haven.

When tax havens are used to hide the ownership and control of assets or to facilitate the evasion of taxes, the CRA will apply the provisions of the Income Tax Act to deny any of the tax benefits sought. The CRA has created 11 centres of expertise across Canada that will be responsible for focussing on aggressive international tax planning including the abusive use of tax havens.

For more information on international and non-resident tax issues, such as foreign reporting requirements and treaties, please visit International Non-Resident Taxes.