working and living in Germany -
Question: My wife has Ontario-registered personal business, she has accompanied me to Germany, where I work on a permanent contract since 2 years ago. We are considered non-residents in Canada. There was a substantial business income in Germany in 2005 for my wife, and now we are not sure where to claim it - in Canada or Germany? It would be better for us to claim Canadian Business income/expenses in Germany, because married couples here can split total income in half, so that business deductions can be applied to my wife's half. >From the other hand, if she claims her world income in Canada, her business expenses cannot be directly applied against 1/2 of my income, or can they? Does a tax treaty allow deductions calculated on Ontario tax report applied against her German income? Thank you for your advice. ------------------------------------- david ingram replies: Assuming that the business was a proprietorship (and not a corporation) and that she performed whatever services she preformed in Germany, Canada has no claim if you are in Germany under article IV of the GERMAN CANADA Income TAX Convention. If, however, the business is a corporation and operated in Canada from a registered office, than the corporation would have to file a Canadian return and pay the profits to her or to her and to you as salary or dividends. If she was operating the business from Germany but returning to Canada on a regular basis to consult, prepare, sell, buy, etc., then it is likely a combination of the two and article XIV of the treaty would take effect,. . If she has a fixed base in Canada (even if not living there), she would pay tax to Canada first and Germany second claiming a foreign tax credit in Germany for the tax paid to CANADA. No fixed base, no tax to Canada. Article 4 Resident 1. For the purposes of this Agreement, the term "resident of a Contracting State" means: (a) any person who, under the laws of that State, is liable to tax therein by reason of that person's domicile, residence, place of management or any other criterion of a similar nature; (b) that State itself, a "Land" or a political subdivision or local authority thereof or any agency or instrumentality of any such State, Land, subdivision or authority. This term does not, however, include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein. 2. Where by reason of the provisions of paragraph l an individual is a resident of both Contracting States, then the individual's status shall be determined as follows: (a) the individual shall be deemed to be a resident only of the State in which the individual has a permanent home available; if the individual has a permanent home available in both States, the individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests); (b) if the State in which the individual's centre of vital interests is situated cannot be determined, or if there is not a permanent home available to the individual in either State, the individual shall be deemed to be a resident only of the State in which the individual has an habitual abode; (c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national; (d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle its status and to determine the application of the Agreement. Insofar as no such agreement has been reached, such person shall be deemed not to be a resident of either Contracting State for the purposes of enjoying benefits under the provisions of the Agreement. ---------------- Article 14 Independent Personal Services 1. Income derived by an individual who is a resident of a Contracting State (GERMANY) in respect of professional services or other activities of an independent character shall be taxable only in that State (GERMANY) unless the individual has a fixed base regularly available in the other Contracting State (CANADA) for the purpose of performing the activities. If the individual has or had such a fixed base, the income may be taxed in the other State (CANADA) but only so much of it as is attributable to that fixed base. 2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. ====================================================== David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com www.centa.com www.david-ingram.com Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. 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