Focus on the tax treaty between France and Canada and its impacts for French individuals residing in Canada
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The tax treaty aimed at avoiding double taxation and preventing tax evasion with respect to income taxes between the French government and the government of Canada was signed on May 2, 1975, and was subsequently amended in 1987, 1995, and 2010 (the "Treaty") [1].
The objectives of this Convention are multiple. First, both countries wish to promote their economic relations and cooperation in tax matters. Furthermore, they wish to eliminate double taxation with respect to certain taxes specifically covered by the Convention.
However, the Convention has provided a safeguard : the arrangement or strategies set up by taxpayers, whether individuals or legal entities, must not have the sole and exclusive purpose of obtaining tax relief provided for by the Convention.
The French and Canadian taxes covered by the Convention are strictly limited to:
income tax, including in the case of a real estate sale;
corporate tax on companies registered in France or Canada; and
tax on transfer duties free of charge (only with regard to France).
This article will help you better understand the tax impacts of your income between the two countries if you are an individual. If you are a business, we have also written an article to guide you.
The concept of tax residency: what are the criteria?
The essential concept within this Convention, as with any tax treaty, is that of tax residence. France operates on a body of evidence concerning the tax residence of a French citizen.
Thus, you will be deemed to have your tax domicile in France if :
your family home remains in France (spouse/children); and/or
if you carry on a professional activity in France that is not ancillary, whether as an employee or not ; and/or
if the center of your economic interests is in France (investments of all kinds, registered office of a company, parent company), i.e. it is in France that you derive most of your income (in comparison with Canada).
And in the event of dual residence ?
However, if you reside more than 183 days in Canada you are also a Canadian tax resident, which is when the Convention becomes very important in order to determine the country to which you belong for tax purposes.
The Convention provides that in the event of dual tax residence, reference must be made to:
the taxpayer's permanent home ;
if the taxpayer has two habitual homes, then his or her center of vital interests (most pronounced personal and economic ties) must be determined ;
if the taxpayer has no residence and does not habitually reside in either country, the tax residence will be that of his or her nationality.
As a reminder, the concept of tax residence is very important because if the French authorities deem you to be a tax resident in France, then all income and profits derived from Canada will be taxable in France.
Therefore, this article will help you shed light on the Tax Convention if you are a French citizen with tax residence in Canada.
French real estate income
The Convention provides that income from real estate is taxed in the country where the property is located.
Thus, even if, due to the criteria mentioned, you are a tax resident in Canada, income from real estate located in France will be taxable in France. As such, even if you own shares in real estate companies and not a property itself, as long as the ownership of these shares gives you the use of the property, you will then be taxed in France.
Conversely, if the shares and stocks of a real estate company do not give you the right to dispose of the property, this income will not be considered real estate income and will be taxed as income from securities.
Dividends
If you have invested in shares/financial securities of French companies and your receive dividends, this income will be taxable in Canada, but you will also be subject to withholding tax in France in an amount fluctuating between 5 and 15% of your income.
However, if you reside in Canada and you receive dividends from a French company taxed in Canada which would give rise to a tax credit if you resided in France, the sum equivalent to this tax credit can be paid to you by the French tax authorities.
There is also an exception that can be found for all types of income covered by the Convention – if these dividends are linked to a professional activity carried out in France (industrial, commercial or independent profession) then in this case, taxes on these dividends will only be payable in France.
Investment income of all kinds
If you are a tax resident of Canada and you receive interest from French claims, you are taxed on this income in Canada.
However, as with dividends, this interest will also be taxable in France (tax which will be limited to 10% of the gross amount of interest), except in the case where it is linked to interest from public enterprises or States.
Similarly, if this income is linked to a professional activity carried out in France (industrial, commercial or independent profession), then in this case, taxes on these dividends will only be payable in France.
Royalties
All remuneration derived from intellectual and/or industrial property rights (e.g. copyright, patent, manufacturing process, computer coding, etc.) will be paid in the beneficiary's country of residence. Here again, if you are a tax resident in Canada and receive remuneration from royalties originating in France, you would also be taxable in France, up to a limit of 10% of the gross amount of the income.
However, there are exceptions to this double taxation, which are strictly inspired by the Convention, including when the royalties arise from copyright, the use or licensing of computer software, patents, or even cultural motion picture films.
It should also be noted that if these dividends are linked to a professional activity carried out in France (industrial, commercial or independent profession), then in this case, the taxes on these dividends will only be payable in France.
Capital gains
If you own real estate in France, or shares, parts, or rights of a company whose assets consist mainly of real estate located in France, then the gains derived from the sale of this property or these shares are taxable in France.
If you own movable property through a permanent establishment (belonging to an enterprise of the other country) in a country, the alienation of the latter will be taxed in that country and not in the country of the main enterprise.
Self-employed professions
If you are a tax resident of Canada but you continue to practice an independent profession in France, you will continue to pay taxes on the income derived from this activity.
On the other hand, if you carry out your independent activity through a fixed base or a permanent establishment in the Emirates, then this income will be exempt from tax in France.
Employee income
If you are a tax resident of Canada and you receive income from employment in that country, then you are exempt from French taxes.
There is, however, an exception: if you are employed by a Canadian company and you physical work in France, then France reserves the right to tax you on Canadian-source income unless the following three conditions are cumulatively met:
you reside in France for less than 183 days during the tax year concerned; and
your employer is not a French resident; and
the cost of the remuneration is not borne in France (through a permanent establishment, for example)
French private sector pension
With regard to pensions and remuneration paid for salaried work prior to the change of tax residence to France (excluding work within the civil service), these are in principle only taxable in the State from which they originate, in France in this case.
For example, pensions paid in application of social security legislation in France are taxable in France, which is the case for voluntary insurance against old-age risk, by way of illustration.
Annuities originating in France are also taxable in France.
The wealth tax
If you are a tax resident of Canada but own non-professional real estate properties in France, and the value of these properties makes you liable for wealth tax in France, you will then have to pay it. Wealth derived from shares, components, or rights in a company primarily consisting of real estate properties located in France is also taxable in France.
Nevertheless, if you hold shares or parts of a company entitling you to at least 25% of the profits of a Canadian company, the wealth derived from these shares and parts will be taxable in Canada.
Exchange of Information
Both States have committed to sharing information that is not limited to the taxes covered by the Convention.
To learn more about what the Tax Convention provides for businesses, you can refer to the article "Focus on the France-Canada Tax Convention: its impacts for companies"
