Rental income in India is taxed only in India as per India-Canada DTAA. So when I filed my taxes for 2011, I reported this income in other income, but also deducted the same amount in the "other deductions" row.
I got a letter from CRA asking me to explain this deduction. I got a bit nervous but told them the intentions (foreign rental income, DTAA, etc). They replied back accepting the deduction.
So my question is: is there an easier way to avoid this communication with CRA every year?
Location: Western Hemisphere
Posted on: 21-03-13 12:48:49
Next year, attach the explanation you gave them this year as a separate piece of paper next to T1. Also, attach a copy of CRA's this year reply saying you are following the same steps based on previous year's actions. In most cases, that should keep them happy.
A letter from CRA is not necessarily a bad thing. All they are asking is a justification and if you can provide one, they accept it or will ask for more information.
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Dimple2001
You shouldn't get nervous when the CRA inquires about a deduction/credit. They do this on a regular basis to taxpayers who file for deductions and credits that are either sizable in nature and/or not ordinarily claimed.
This happens especially when a taxpayer electronically files a return. Because there is no way for the CRA to accept supporting documentation when a return is e-filed, they ask for additional information via these letters, usually called a 'preassessment' or 'processing review'.
As long as the deduction/credit is legitimate, legal and warranted, you should have nothing to get uneasy about. Make sure, though, that you have solid proof/documentation to support whatever it is that you end up claiming, in case it is questioned.
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Madan Chartered Accountant team
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I have an update on this topic. Now that it is tax filing time, I decided to speak to CRA about this. When I mentioned "foreign rental income", most agents had no clue and kept forwarding it. After about 30 mins, I found someone who appeared knowledgeable. I was surprised to learn that rental income in India is taxable in Canada. When I pointed to dual tax agreement, the agent on the phone pulled up article 6 of the Canada-India tax agreement which states:
"Income from immovable property (including income from agriculture or forestry) may be taxed in the Contracting State in which such property is situated."
The agent said: So rental income may be taxed in India, but nowhere is it mentioned that it is tax-exempt in Canada. The only relief you get is the foreign tax credit.
This means I will have to go and amend my previous tax returns 
. Hope it was useful. I look forward to hearing contrary opinions.
Quote:
Originally posted by AzizTheGult
I have an update on this topic. Now that it is tax filing time, I decided to speak to CRA about this. When I mentioned "foreign rental income", most agents had no clue and kept forwarding it. After about 30 mins, I found someone who appeared knowledgeable. I was surprised to learn that rental income in India is taxable in Canada. When I pointed to dual tax agreement, the agent on the phone pulled up article 6 of the Canada-India tax agreement which states:
"Income from immovable property (including income from agriculture or forestry) may be taxed in the Contracting State in which such property is situated."
The agent said: So rental income may be taxed in India, but nowhere is it mentioned that it is tax-exempt in Canada. The only relief you get is the foreign tax credit.
This means I will have to go and amend my previous tax returns
This is correct. DTAA is Double taxation avoidance agreement - means you will be taxed in Canada and eligible to get tax credit for tax paid in India.
If you are resident of Canada , you are taxed on all foreign income and only thing is that you will get tax credit in Canada for the Tax that you paid in India.
Cheers!
Heart Stealer is correct.
If you are a resident of Canada for tax purposes, you will be taxed on your world-wide income, including the rental income earned in India.
However, India gets first priority on taxing that income, because it is sourced in India. The taxes that you pay or paid in India for that rental income will reduce your taxes in Canada.
I hope that helps.
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Madan Chartered Accountant team
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