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I am living in India and a tax resident of India. I am not a tax resident of Canada.
But I have a Savings account in Canada. On which I get Bank interest. This is my only source of income in Canada. No other income in Canada like Dividends, Rental Income etc.
Now is this Bank interest subject to 0% withholding tax or 25% withholding tax or 15% withholding tax (India & Canada tax treaty).
This new rule from CRA since 2008 is really confusing me. Apparently it says withholding tax on Bank interest since January 1, 2008 is eliminated as a Bank is Arms length entity. Am I correct in this interpretation of mine? That my bank should not hold back 25% of the interest paid as Withholding tax as a non resident?
Also what T5 slip should they issue me after I tell them I am a non resident. Regular T5 slip or NR4-T5 slip. Regardless of any withholding tax, should they give me a T5 or NR4-T5 slip.
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Major changes to paragraph 212(1)(b) – Elimination of withholding tax on arm's length interest paid or credited to non-residents effective January 1st, 2008.
Prior to the amendments, paragraph 212(1)(b) was structured so that interest payments were taxable, other than those set out in a series of subparagraphs. In a significant revision of the non-resident withholding tax, paragraph 212(1)(b) of the Act was amended.
The new provision exempts from tax any interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at arm's length, other than those payments ("participating debt interest") that are in effect a distribution of profits or the like. As well, interest on certain debt obligations ("fully exempt interest") is exempt even if it is paid to a non-arm's length person or might be considered "participating debt interest". This retains an important aspect of the previous rule.
Interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at non arm's length will be taxed at the statutory Part XIII tax rate of 25% or the reduced rate of Part XIII tax eligible under a tax convention between Canada and the beneficial owner's country of residence, where applicable.
Dear Jyoti,
Thank you for your detailed inquiry.
You are correct in your understanding of the elimination of withholding tax on bank interest earned by non-residents of Canada, provided certain conditions are met.
✅ Withholding Tax on Bank Interest
As per the changes introduced effective January 1, 2008, bank interest paid to non-residents by Canadian financial institutions is generally exempt from withholding tax, provided:
- The interest is paid on a deposit held at a Canadian bank or credit union;
- The recipient is a non-resident of Canada;
- And the recipient is dealing at arm’s length with the payer (which is typically the case with personal bank accounts).
Given that you are a tax resident of India and maintain only a Canadian savings account, the interest you receive from this account should not be subject to any Canadian withholding tax, assuming the bank has been correctly informed of your non-resident status.
🧾 Reporting by the Bank – T5 vs. NR4
Canadian banks should not issue a T5 slip to non-residents. Instead, they are required to issue an NR4 slip to report any Canadian-source income paid to non-residents — even if the income is not taxable or withholding tax is nil.
You should confirm with your bank that:
- They have your non-resident status properly recorded;
- They are issuing you the correct slip — NR4 (not T5).
📌 Summary:
- No withholding tax should apply to your Canadian bank interest if you are a non-resident.
- The correct slip you should receive is the NR4, not a T5.
- No Canadian tax return filing is required if bank interest is your only source of Canadian income, and the NR4 is correctly issued.