Canadian-Italian Taxes

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By: Nick
August 2006

Both the Canadian tax act and the Italian tax laws require any person that is a tax resident to pay taxes on worldwide income. The first question is which country will you be a tax resident of. While the obvious answer is the place you lay your pillow down depending on how complicated your life is you may find this not to be the case. It is very possible to not spend a single day in a country and to be considered a tax resident.

Figuring out residency:

Before you run away screaming Canada Customs and Revenue Agency [CCRA] actually makes it relatively painless to determine your tax residency.

You need to fill out DETERMINATION OF RESIDENCY STATUS (LEAVING CANADA) [Form nr73]

If you fill out the form CCRA will provide you a non-binding opinion. While the opinion is non binding unless you've lied you should be safe. Even if they decide to change their opinion you will be protected from fines and interest penalties. But if you have lied then the opinion will provide no protection.

The form is relatively simple and painless to fill out. OTOH the corresponding interpretation bulletin is the usual CCRA style. Just remember if you need some sleep go ahead and read the bulletin but it's not required.

Now what?

If you disagree with the CCRA opinion you can dispute it. You'll have to figure out if it is worth your time and money to. If CCRA determines you will remain a Canadian resident then you will need to file your Canadian taxes. If the CCRA determines you will no longer be a Canadian resident you'll have various issues to deal with.

• Deemed disposition. The day you leave Canada you will be deemed to
  have sold all your assets. For taxable assets you'll have to report any
  gain/loss on your final Canadian tax form. Remember this is deemed
  disposition. If for example you own a cottage with a large capital gain
  you may be facing a large tax payment without the benefit of a real cash
  sale.
• Withholdings. You will now be like any other non-Canadian resident.
  You will face treaty withholding on everything from interest income to
  pensions. The exact amount depends on the type of income and how it's
  treated by the Double taxation treaty. There is also a Social security
  agreement that provides special treatment for OAS pensions. The
  principle benefit is the first $10,000 is free from any Canadian tax
  withholding. But if you'll be working in Italy you'll also find sections
  dealing with combining CPP contributions with the Italian system.

Canadian tax rates:

Federal tax rates for 2006 are:

• 15.25% on the first $36,378 of taxable income;
• 22% on the next $36,378 of taxable income;
• 26% on the next $45,529 of taxable income; and
• 29% of taxable income over $118,285.

Then you need to add your provincial taxes:

For example Ontario

• 6.05% on the first $34,758 of taxable income,
• + 9.15% on the next $34,759,
• + 11.16% on the amount over $69,51

http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html

That means total Canadian income taxes are at least 21.3% for Ontario residents.

In comparison:

• fino a 15.000 euro 23%
• oltre 15.000 e fino a 29.000 euro 29%
• oltre 29.000 e fino a 32.600 euro 31%
• oltre 32.600 e fino a 70.000 euro 39%
• oltre 70.000 45%

Info from the Agenzia delle Entrate

The numbers are fairly close. How exactly your personal situation will work
out depends on your deductions and the makeup of your income. In both
countries some income streams get preferred treatment.

This article was submitted by one of the members of our forum Expats in Italy.