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Who pays income tax on a joint saving account with a foreigner?
February 22, 2020
4:29 pm
depositsavings
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I have a joint saving account with my mom who is a foreign resident and the sole contributor to the account. The only reason I'm on the joint account is that the bank wouldn't open an account to a foreign resident. I don't report the interest income since I don't contribute at all. But recently I got a Notice of Reassessment taxing me on the full interest. I'm planning to dispute, but don't know if I have the grounds for that. She's in Asia, no tax treaty with Canada.

February 22, 2020
10:19 pm
Loonie
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I have no idea, really.
If it's a large amount, it may be worth your while to consult a lawyer who specializes in taxation.

I'm just guessing , but perhaps CRA views it as a gift to you, which it probably effectively is, and thus now taxable to you.
The underlying question may be, why does your mom keep money in a Cdn account with you as joint owner?

In the meanwhile, you must pay what they say you owe to avoid possible additional penalties.

February 23, 2020
7:28 am
Norman1
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depositsavings said
I have a joint saving account with my mom who is a foreign resident and the sole contributor to the account. The only reason I'm on the joint account is that the bank wouldn't open an account to a foreign resident. I don't report the interest income since I don't contribute at all. But recently I got a Notice of Reassessment taxing me on the full interest. I'm planning to dispute, but don't know if I have the grounds for that. She's in Asia, no tax treaty with Canada.

It sounds like you are the primary account holder of the joint account. The T5 slip would be issued in your name and SIN.

CRA likely noticed that neither you nor your Mom reported the interest on that T5 on your returns!

I think you could dispute your reassessment on the grounds that the funds are 100% your Mom's and that your Mom should be the one reassessed for the interest on those funds.

Lack of a tax treaty doesn't mean lack of taxation. For example, the US foreign tax withholding on dividends is generally 30%. With the Canada-US tax treaty, that withholding is cut in half to 15% for Canadian taxpayers.

February 23, 2020
11:19 am
GICinvestor
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Why should there be a free ride?

Appeal it.
Or
Pay it and take the payment funds out of the account.

February 23, 2020
11:37 am
AltaRed
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GICinvestor said
Why should there be a free ride?

Appeal it.
Or
Pay it and take the payment funds out of the account.  

Agreed. If it truly belongs to Mom she needs to include it in a Part XIII non-resident tax return.

Does the bank also not have your mother's foreign address on record to issue a non-resident tax slip?

If not, pay the tax as if it is your income and take it out of the account. You cannot have it both ways.

February 23, 2020
4:18 pm
Dennis
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I don't know what it is going to be but at least I agree with Loonie with paying CRA no matter what you do. That way, if you dispute and lose, you not pay steep penalty and interest. If you win, they will return your money with interest.

February 23, 2020
4:32 pm
GICinvestor
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I would say.......

Pay the tax
Take that cost out of the joint account to compensate.
To do an appeal will only open up a can of worms and put yourself on radar for a long time. Not to mention the Mom may have difficulties when entering Canada for a visit.

February 23, 2020
6:30 pm
Bill
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CRA site indicates "Generally, you report your share of interest from a joint bank account based on how much you contributed to it" so in this case it's 100% your mom's income. If you have the documentation to prove that (e.g. can show the money originally came directly from an account only in your mother's name) & can explain to their satisfaction the reason for you opening the account with you as primary holder I'd go for it. But also make sure mom has reported the income as AltaRed indicates she is required to, obviously CRA will lay off if the income has already been properly reported by mom. (Also I'm assuming you or mom have no other reasons to avoid CRA's scrutiny, no other reasons you don't want CRA to take a closer look at what's going on here.)

February 25, 2020
10:02 am
depositsavings
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Thanks for all the replies. To answer a few questions here: the money is not gift for me otherwise I would have used it towards a down payment; she transferred the money out of China before China implemented restrictions to their citizens of buying and transferring foreign currency; the account is joint because the bank wouldn’t open an account to a foreign resident, and she doesn’t want me to manage her money solely (I would otherwise put it in my EQ, pay tax, and still get the same return as this current low interest account). I paid the reassessment amount from the joint account and I’m definitely gonna ask her to move the money out of my name.

February 25, 2020
11:42 am
Bill
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I would have appealed on the simple basis I'm not liable for someone else's taxes. This is a textbook case of CRA computer seeing your SIN but no amount being reported on your return so automatically (and incorrectly) reassessing you. Easy picking of the low-hanging fruit, right or wrong, is their style, from my experience.

February 25, 2020
12:25 pm
Loonie
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I think you did the right thing by paying it because of the risk of further penalties.
Bill's argument makes sense to me, but you can't depend on the sense of the Tax Court being the same as one's own. There is the possibility that they would regard it as similar to tax evasion since, assuming your mother predeceases you and does nothing with the funds in the interim, the money, including the interest, will be yours automatically, upon presentation of a death certificate.

I hope your mother can find some other place to put her money, but it will be next to impossible if she is not in Canada to do so. It would help if she is a Canadian citizen probably, as she will then have a SIN.
Perhaps other forum members will know where she could open an account.

February 25, 2020
12:37 pm
Oscar
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You have access to the account so why not just continue to pay the tax from the account. Don't wait for a reassessment , next year add the T5 to your income and complete your return. Then complete the return without that income and note the difference. Explain it to your mom . You are doing her a favor.

February 25, 2020
7:15 pm
Bill
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depositsavings said the bank would not give his mother an account as she is a non-resident, apparently Canadian citizenship is not the issue for the bank.

No need to go to Tax Court, file an objection with CRA Appeals division, they're pretty good at being "fair" - I've heard some exasperated CRA auditors call Appeals "the gift shop", as they give back many reassessments that the auditors hastily propose. Again, there is no such concept that A can be assessed for B's personal taxes, related or not.

I suppose if Mom doesn't report this income, and CRA doesn't go after her for it now or in the future, at least you're not being double taxed, and if you're in the same tax bracket it makes no difference in amount. And as Mom will reimburse you, if you're ok with the whole situation, i.e. every year going forward you'll be paying someone else's taxes, then I guess no use wasting time opposing it.

February 25, 2020
7:47 pm
GICinvestor
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The only reason I'm on the joint account is that the bank wouldn't open an account to a foreign resident

I think we need to have a better clarification of the DETAILS of the above. Nevertheless some one HAS to pay income tax on interest earned.

the account is joint because the bank wouldn’t open an account to a foreign resident, and she doesn’t want me to manage her money solely

Is the above not contradictory?

February 25, 2020
8:23 pm
depositsavings
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Thanks Bill, do you recommend me finding a tax lawyer to represent me during the dispute? And like Loonie said, the joint account does go to me if she dies, maybe that's CRA's grounds for me liable to the tax. Dispute it or not, my biggest question now is do I report the T5 as my income for the 2019 tax year? Technically speaking, if the interest is counted as my income then I should pocket the interest after tax! To answer GICinvestor, I don't see the contradiction, we should have done a better job of establishing a trust and file T3 annually.

February 25, 2020
8:40 pm
depositsavings
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And anyone knows if there are banks, preferably with high interest saving accounts, that accept non-residents of Canada to open accounts please kindly advise. Thx!

February 25, 2020
8:59 pm
Norman1
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depositsavings said
… And like Loonie said, the joint account does go to me if she dies, maybe that's CRA's grounds for me liable to the tax. …

You're not really liable for the tax until after the money is yours.

The actual motivation may be much simpler than that.

CRA noticed that no-one reported the interest on that T5 slip on their return. T5 slip mailed to taxpayer was perhaps lost in the mail or was overlooked when the tax return was done. It happens.

CRA allocates the interest to and re-assesses the primary holder of the joint account. Hopefully, that will jog the primary holder's memory or kick start a conversation between the joint holders of the account.

February 25, 2020
9:00 pm
Norman1
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According to T4058 Non-Residents and Income Tax - 2019, there's no longer any Part XIII tax withholding on arm's length interest paid to a non-resident:

Method 1 – Non-resident tax
Canadian financial institutions and other payers have to withhold non-resident tax at a rate of 25% on certain types of Canadian-source income they pay or credit you as a non-resident of Canada. …

Note
Generally, interest you receive or that is credited to you is exempt from Canadian withholding tax if the payer is dealing at arm's length with you. For more information, contact the CRA.

Toronto tax lawyer David Rotfleisch explains the legal details in Non-Resident Withholding Tax – Interest Income – A Toronto Tax Lawyer Analysis:

Interest under Part XIII – Tax on Income from Canada of Non-Resident Persons

The tax treatment of interest payments made from a Canadian payer to a non-resident is described under paragraph 212(1)(b) of the Act. The current tax treatment of interest payments to non-residents changed significantly about 10 years ago, with the changes being effective as of January 1, 2008.

Under the current regime, interest payments to non-resident are subject to withholding tax in two situations: if the debt is “participating debt interest” or if the debt is from a non’s arm’s length payer and is not “fully exempt interest” under the Act. In other words, an arm’s length payer of interest to a non-resident is not subject to withholding tax except when the debt is “participating debt interest” as defined by 212(3) of the Act. Very generally, participating debt interest is interest that is dependant on the performance of the payer’s business or investments. …

The NR4 slip (not T5 slip) issued by the financial institution to the non-resident would have Income Code 61 to indicate the amount is arm’s length interest.

February 25, 2020
11:14 pm
Loonie
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I don't understand the impliacations of what Norman has written.

I don''t think the OP has made a contradictory statement.

Upon re-reading the OP, I am wondering if you did not report the T5 at all. This would definitely have triggered a reaction at CRA. I think that what you probably should have done was to report it and then count it as 100% mom's and 0% yours. There is a place on the form where you can do this. What you probably should have done is sent in a revision when you realized you should have reported it; I don't know if you can still do this once you have been reassessed.
That being the case, if it were me, I might appeal the reassessment, pleading that you failed to include the T5 due to a misunderstanding of what you were supposed to do with it and then ask for it to be attributed 100% to mom (or something along those lines), assuming there is clear documentation that the money is mom's.
Then, for 2019, I would declare it but again list it as 100% mom's and 0% yours. I have read that this will still trigger a response from CRA, as they tend not to believe this ratio is credible, but you can produce your documentation again when they ask for it and it may not require an appeal. At least you would not be in trouble for failing to report income if you did it that way. I have heard that if you fail to report income twice, then you get a lot more scrutiny from them for your entire return, but I can't verify that.
You might have to go through this every year.

It doesn't seem right to me to voluntarily declare it as your income in subsequent years when it isn't your money. It seems to me that if you do that, and then she moves the money somewhere else, they may still think it's actually yours! Who needs the complications?
So you would need to appeal it in order to set the record straight for future years.

Perhaps she can find a bank that will open an account for her among the banks that frequently deal with people who have personal connections to other countries. I'm thinking of maybe HSBC, Habib Bank, ICICI Bank or the Korean one whose name I forget. If they require her to appear in perosn to open an account, this could be tricky, especially with current travel difficulties. Perhaps "Doug" knows if HSBC will do this.
Other than that, I would consider putting it into a non-interest-bearing chequing account until she can find a better place for it, just to get the issue out of your hair. Then there is nothing to report or dispute and she still has her money in Canada, the main goal..

If I appear to be contradicting what I said earlier, it's because i re-thought the issue.

February 26, 2020
10:05 am
Bill
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I would not hire a tax lawyer or any "expert" for this, CRA's Appeals process is designed to accommodate self-representation. Here's a link to CRA process to file a notice of objection (I'm assuming you received a notice of reassessment assessing you for this additional income).
https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/file-objection-cppei-appeal-minister/income-tax-decision-tree.html

Note also that you can try to discuss this first with the officer and supervisor who reassessed you, however that option's not really available any more after a formal notice of reassessment has been received by you.

As I've said before, my defence is simple: per the rules for joint accounts zero of this is my income, despite T5 being issued in my name as primary holder on the account. So remove it from the reassessment, I'm not liable for another person's taxes, even if it is my Mom. That's it, don't really care about anything else. (Unless, as I said previously, you're ok with erroneously reporting it every year going forward and just reimbursing yourself from the account but, as Loonie indicates, that may cause some issues later. For me, I like to do things right, by the rules, others prefer to do what's practical or convenient, I suppose.)

Perhaps CRA's dilemma might be that there was no withholding tax deducted as you (resident) were the primary but on the other hand I'm not sure your mother is required to file a tax return if this is her only income sourced in Canada. So maybe they're going after you as they can't get at Mom. I'm getting out of my depth here, I don't know all the ins and outs of the rules re non-residents, maybe someone else here knows. In any event, I'd force CRA to show me where it says I have to pay someone else's taxes, particularly in light of their stand re who reports the interest income in joint bank accounts. It's not whoever gets the T5, it's whoever's funds generated the income, that's their own stated position. And it's not within your power to choose or "attribute" the income to Mom or anyone else for that matter, others are required to do their own tax reporting, unless you have POA for Mom's tax filings.

My understanding is that non-residents can have bank accounts but many (or all, except the online ones?) banks require non-residents to do so in person, so maybe that was the original problem here, i.e. Mom could only be added as secondary to you a primary holder of a joint account because she did not attend physically at the bank, I don't know.

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