The main provisions of the tax treaty between France and Canada regarding direct taxes
RENTAL INCOME : article 6 of the treaty
This income is taxable in France if the real property is located in France
It falls under the category of either "revenus fonciers" (rental of unfurnished real property), or "bénéfices industriels et commerciaux" (rental of furnished real property).
Canadian residents must also report this income in Canada. The tax paid in France will be deducted as a foreign tax credit from the Canadian taxes.
Method of taxation of rental income in France
- Regime "réel"
If your rental income received in the year is over 15 000 € or by option, if this is at your advantage. (Caution : this option is irrevocable for 3 years).
Such income must be reported before June 30 (for the US residents) of the following year on Form # 2042 and in case of "revenus fonciers" on attachment Form # 2044.
On form 2044, fill in your detailed income and deduct your actual expenses (insurance, loan interests, repairs, renovation or maintenance work, property tax "taxe foncière").
Indicate the result in part 4 of form 2042 (line 4BA if its a profit).
- A simplified tax treatment (micro-foncier)
This tax treatment applies when the gross rental income (expenses not deducted) received by the household is lower or equal to 15 000 €. In this particular case, the taxpayer has to report his yearly gross rental income on line BE, page 3 of form 2042. He does not have to file the form # 2044. The net taxable rental income is automatically computed by application, on the gross reported income, of a 30% standard deduction, representing the expenses.
- Method of taxation of commercial and industrial income in France
Rental income from furnished property are considered as industrial and commercial income (BIC).
The tax regime applicable to such income when they are taxable should be taxed under the conditions of ordinary law (micro-BIC, auto-entrepreneur, régime simplifié ou régime réel normal).
On form 2042 C PRO, part 5, fill in your gross income on line 5ND (half in 5ND and half in 5OD if you own the property jointly with your spouse). You’ll get a 50 % deduction, representing your expenses.
Professional dwelling renters (in particular, those that can justify annual revenue related to this activity above 23 000 euros) must hold a commercial accounting and comply with all reporting requirements and accounting of regular business.
- For the taxpayers who are not residents of France, the tax cannot be lower than 20% of the net income except if they can justify that the average rate of the French income tax, calculated on all income from French and foreign sources, would be lower than 20% if these individuals were resident of France. The average rate could then be retained (article 197 A of the French Tax Code).
DIVIDENDS: Article 10 of the treaty
Dividends paid by a French company to an individual resident of Canada are subject to a 15% withholding tax in France.
In order to be granted the 15% reduced rate on the withholding tax, the recipient of the dividends must previously provide the paying establishment with the Form 5000 and 5001 signed by the Canadian tax authorities in order to confirm their status of Canadian resident for tax purposes. The French withholding tax constitutes a tax credit deductible from the Canadian tax.
INTEREST INCOME : Article 11 of the treaty
Some investments are compensated by interest payment (bonds, Government loans, cash vouchers...). According to the date of investment, interests received by Canadian residents are :
either exempt from French income tax ;
or subject to a withholding tax, which usually amounts 10% of the gross interest income.
ROYALTIES : article 12 of the treaty
Copyright are generally taxable only in the country of residency.
Other royalties are generally subject to a 10% withholding tax in the country of origin. Thus French royalties paid to a Canadian resident are subject to a 10% withholding tax in France. (See Form 5000 and 5003 They are also taxable in Canada with the deduction of a foreign tax credit for the 10% withheld in France.
CAPITAL GAINS : article 13 of the treaty
Capital gains realized on the sale of real estate or shares in French real estates companies are taxable primarily in the country where the property is located. It is also subject to taxes in the country of residency.
Capital gains realized by a Canadian resident on the sale of real estate located in France, will be subject to a 33.33% withholding tax in France. It will also be taxable in Canada but the income tax will be reduced by a tax credit computed from the tax withheld in France.
Capital gains realized by an individual on the sale of movable property (e.g. investment portfolios) are usually taxed in the country of residency.
Thus, a capital gain realized on the sale of French stocks by a Canadian resident will be taxed in Canada.
DEPENDENT PERSONAL SERVICES : article 15 of the treaty
An employee, who is not a Canadian resident, residing in France is taxable only in France unless he performs his professional activities in Canada.
He remains taxable in France if he stays less than 183 days in Canada and if his wages are not paid or supported by an employer resident in Canada or a permanent establishment resident in Canada.
PENSIONS : article 18 of the treaty
Place of taxation
Pensions paid by France in respect of past employment in France to a resident of Canada shall be taxable only in France.
Annuities arising in France and paid to a resident of Canada are taxable in France. They are also taxable in Canada but the tax is reduced by a tax credit computed from the taxes paid in France.
Method of taxation in France
When they are taxable in France, pensions paid to a US resident or citizen are subject to a withholding tax.
It is computed on the total of all pensions after the deduction of the deduction of 10% (limited to a 3.660 Euros ceiling for each tax household).
The withholding rates are as follows :
|Rate||Income 2021 (Year)||Income 2021 (Trimester)||Income 2021 (Month)||Income 2021 (Week)||Income 2021 (Day)|
|0 %||Under 15018 €||Under 3 755 €||Under 1 252 €||Under 289 €||Under 48 €|
|12 %||Between 15 018 and 43 563 €||Between 3 755 and 10 891 €||Between 1 252 and 3 630 €||Between 289 and 838 €||Between 48 and 140 €|
|20 %||Above 43 563 €||Above 10 891 €||Above 3 630 €||Above 838 €||Above 140 €|
The limits referred to in the table above must be assessed by summing all pensions received by members of the same tax household.
The 12% withholding tax is final, whereas the exceeding bracket must be taxed at a progressive rate in combination with, if necessary, the other French source incomes.
Nevertheless, this income, as well as the withholding tax applied, must be reported on the annual income tax return.
The fraction of pensions received greater than 41 327 euros must be taken into account in calculating the income tax. In return, the withholding tax rate of 20% operated on such pension is creditable against the amount of income tax.
PUBLIC COMPENSATIONS : article 19 of the treaty
Provisions of article 19, in application since January 1, 1999, give the exclusive right of taxation of public compensations to the State that pay them when the beneficiary is a citizen of that State.
Thus, public compensations paid by the French Government to French citizens working in Canada, are solely taxable in France. This applies also to dual citizens with French and Canadian citizenships.
When compensations are paid by the French Government to individuals who are not French citizens, these compensations are solely taxed in Canada (based on article 15).
Method of taxation in France :
An employee of the French public administration residing in Canada and taxable in France must file a French tax return no 2042 before June 30th of the following year.
The tax is calculated according to the French tax rates.
STUDENTS AND TRAINEES : article 20 of the treaty
A French resident, who comes to Canada solely for studies , for training or apprenticeship is not taxable in Canada on payments received for: