Ian Young

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

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Canada’s Prime Minister Stephen Harper and Hong Kong Chief Executive Leung Chun-ying witness the signing of the HK-Canada tax treaty in November 2012 by ministers Ed Fast and KC Chan. Credit: SCMP Pictures

Ian Youngin Vancouver

Published: 6:41pm, 7 Jan 2014Updated: 11:52am, 23 Feb 2016

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

The treaty, which was signed in November 2012 during Canadian Prime Minister Stephen Harper’s visit to Hong Kong, has some pretty substantial implications. The treaty (which comes into effect in Hong Kong when the new financial year starts there in April) aims to provide clarity for the huge floating community of dual residents and dual nationals who split their time between Hong Kong and, generally, Vancouver or Toronto. This was essential, since it had previously been established that the 1986 tax treaty between Canada and China did not apply to Hong Kong, with its pre-1997 colonial status and post-1997 standing as a Special Administrative Region of the PRC.

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.