Israel – Canada Tax Treaty

Business Activity in Canada

Canada’s total GDP currently sits at around $2,371 billion, with an annualized growth of about 1.1 percent since 2019. Trade and commodity prices significantly contribute to Canada’s economic growth while real estate and manufacturing hold a large portion of the total GDP. Its leading exports include oil, gas, and automotive products with the United States being the primary export destination, followed by China, and Japan.

Tourism in Canada has seen constant growth over the years. Despite COVID-19’s big hit on tourism causing a decrease of 50 percent from the previous year, it has since recovered to about $24.7 billion in expenditure leading to the creation of 1.8 million jobs and $102 billion per year in economic activity.

Canada has shown trends of increased prices in the real estate market due to lower interest rates and limited housing supply in some areas. As asking prices keep increasing, this can be a potential investment opportunity in the long run. With low interest rates, individuals can borrow more easily, increasing the demand for property.

Bilateral Agreements between Canada and Israel

1. Double Taxation Agreement
2. Convention on Social Security
3. Canada – Israel Free Trade Agreement

Convention on the Prevention of Double Taxation

The agreement between the governments of Israel and Canada regarding the avoidance of double taxation was signed in 1975 and entered into force on January 1^st, 1976. An amended treaty was signed in 2016 and entered into force on January 1^st, 2017.

To read the agreement in English click here.

Convention on Social Security

In 2003, Canada and Israel implemented a limited social security agreement which was put into use to prevent residents of both countries from double payment of social insurance. The agreement does not include the province of Quebec.

To read the agreement in English click here.

Canada – Israel Free Trade Agreement

Canada and Israel signed a free trade agreement in 1997. The agreement only eliminated tariffs on industrial and agricultural products. The agreement was amended a couple of times through the years, with the latest amendment being in 2019. The modified CIFTA reduces tariffs making it easier for Canadian companies to have access to the Israeli market and vice versa. The two-way merchandise trade has more than tripled since the agreement was created from $412 million to $1.8 billion.

To read the agreement in English click here.

Applicability of the MLI

Canada and Israel have both signed the MLI, which means that there is an automatic exchange of information between the two countries. Canada and Israel signed the MLI in 2017. Both countries ratified it in 2019. This means that the treaty between Israel and Canada changed automatically according to the content of the MLI treaty, subject to the reservations set by both countries.

Residency for Tax Purposes in Canada

Residence of an individual

Individuals are considered residents of Canada for tax purposes if they have stayed in the country for a minimum of 183 days, don’t have residential ties there, and are not residents of another country under the tax treaty with Canada.

Individuals would also be considered residents if they are employed as government workers, members of the Canadian Forces, or working with Global Affairs Canada, provided that they lived outside Canada during the tax year and have no residential ties in Canada.

To read about when an individual is considered a tax resident of Israel click here.

Residency of a company

A company is considered a tax resident of Canada if it is incorporated there or has its central management and control in the country.

To read about when a company is considered a tax resident of Israel click here.

The Tax System in Canada

The Canadian tax authority is called The Canada Revenue Agency (CRA).

Income taxation: 15% – 33%

Taxation of companies: 15%

VAT: 5%

Capital gains tax: 50%

Withholding Tax

Inheritance tax and estate tax in Canada

There are no inheritance or estate taxes in Canada. However, there may be capital gains subject to taxation when an individual passes.

Relocation to Canada

Currently, Canada has the fourth largest Jewish community in the world, behind Israel, the United States, and France, with approximately 335,000 people.

There are some tax benefits of moving to Canada called the “welcome to Canada” package. The benefits include, among others, a rebate on sales tax, a Canada child benefit, a Canada Carbon Rebate, and more for newcomers, the “90% rule” lowers the amount of tax that needs to be paid. If 90% of one’s income is from Canadian sources for the part of the year, they weren’t a resident of Canada, they can claim a federal non-refundable tax credit.

Relocation to Canada offers many other benefits as well such as free health care, world-class education, high quality of life, job opportunities, etc. Canada ranks in the top 15 happiest countries to live in. Canada is also one of the easiest countries to conduct business in as it has ranked in the top 3 of the G20 countries under this category.

More information about relocation can be found on our website relocation page.

Real estate taxation in Canada

In Canada, property tax is levied both at the federal and provincial levels. At the federal level, the tax is one percent of the taxable value of the property, taking into account the ownership percentage, and is paid annually. There are several exemptions from this tax, including residential property owned by a Canadian citizen or a corporation incorporated in Canada and more. At the provincial level, the tax rate varies among the provinces.

The property transfer tax, which is paid by the buyer upon purchase, generally ranges from 0.02% – 3% depending on the value of the consideration.

Transfer of funds from Israel to Canada

According to section 170(a) of the Israeli Income Tax Ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. The tax authority may allow, under certain circumstances, a reduction or dismissal of the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Since both countries have a tax treaty, one can submit a declaration form (statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, it is possible to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our firm handles the requirements of foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries –automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

Banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad click here.

Types of business entities in Canada

The three most common types of business entities in Canada are sole proprietorships, corporations, and partnerships.

1. Sole proprietorships – this type of business entity is the most common way to start a business in Canada. In a sole proprietorship, there is an individual that owns the entity, the owner receives all the profits directly but also has unlimited liability. The income is taxed at the owner’s personal rate.
2. Corporations – corporations are legal entities that can own assets and take on debt independently of their owners. In this entity type, the owner’s liability is limited. Note that the cost of setting up a corporation is higher than that of any other business entity.
3. Partnerships – partnerships include two or more parties that choose to operate one business and share the profits and liabilities. Similarly to sole proprietorships, partnerships are also easy to form. The partnership itself doesn’t pay income taxes or file income tax returns, but rather each partner includes a part of the income or loss of the partnership in their income tax returns. There are a few types of partnerships, including limited partnerships and general partnerships. In a limited partnership, there are panthers with limited liability and also partners with unlimited liability. In contrast, in a general partnership, all partners have unlimited liability.

Incentive laws in Canada

Canada offers a range of tax incentives, providing different benefits for entities operating in certain provinces, industries, and more. These include income tax holidays in some provinces for entities that meet the requirements, incentives for environmental sustainability, research/development, manufacturing, etc. For example, investment tax credits (ITC) are available on qualified scientific research & experimental development expenditures which may be refundable or non-refundable. Individuals or corporations can qualify for an ITC with a basic rate of 15%.

The Canadian government also offers many other incentives such as student aid, housing rebates, employment insurance benefits, and more.

Canada Double Tax Treaties