PPF interest: tax treatment in Canada

[8494193]

Hi,

I have been paying tax in Canada on the interest generated within my PPF account in India. Is that correct or are PPF accounts treated like exempt retirement accounts within Canada?

there wasn’t much I could find on Google regarding this topic. Any insight would be helpful.

thanks!

 

[jclarke99]

Hi,

I have been paying tax in Canada on the interest generated within my PPF account in India. Is that correct or are PPF accounts treated like exempt retirement accounts within Canada?

there wasn’t much I could find on Google regarding this topic. Any insight would be helpful.

thanks!

I don't know about PPF accounts in India, but I know that if you own U.S. Govt bonds, the interest isn't taxable in the U.S. until the bonds are redeemed, but the same interest is taxable in Canada in the year that it is earned (leading to the possibility of eventual double taxation).

 

[8494193]

I don't know about PPF accounts in India, but I know that if you own U.S. Govt bonds, the interest isn't taxable in the U.S. until the bonds are redeemed, but the same interest is taxable in Canada in the year that it is earned (leading to the possibility of eventual double taxation).

Gotcha. So, PPF accounts are basically pre-tax cash term deposits that run for 15 years (analogous to a 15Y GIC, simply speaking). The interest earned in a PPF is tax-free in India and so are the proceeds at maturity (i.e. it's a tax-sheltered account in India). That's it. By that logic, everything points to interest being taxable in Canada in the year it was earned.

 

[jclarke99]

Gotcha. So, PPF accounts are basically pre-tax cash term deposits that run for 15 years (analogous to a 15Y GIC, simply speaking). The interest earned in a PPF is tax-free in India and so are the proceeds at maturity (i.e. it's a tax-sheltered account in India). That's it. By that logic, everything points to interest being taxable in Canada in the year it was earned.

Not sure. Take the case of a U.S. Roth IRA - taxes are paid up front, and interest/gains/distribution are tax free thereafter, even if residing in Canada. So, hopefully someone on this board who knows more about cross-border implications of PPF accounts will chime in. If not, you may want to pursue professional advice.

 

[jclarke99]

Found this regarding taxation of PPF accounts in the U.S. (albeit not Canada).
https://ttlc.intuit.com/community/taxes/discussion/i-resident-alien-have-a-public-provident-fund-ppf-account-in-india-do-i-have-to-report-this-account/00/358075#
This mentions a relevant article on Nov 16, 2017 in The Times of India - you might want to try and track that down.

 

[8494193]

Found this regarding taxation of PPF accounts in the U.S. (albeit not Canada).
https://ttlc.intuit.com/community/taxes/discussion/i-resident-alien-have-a-public-provident-fund-ppf-account-in-india-do-i-have-to-report-this-account/00/358075#
This mentions a relevant article on Nov 16, 2017 in The Times of India - you might want to try and track that down.

Thanks for the pointers. I've gone through that thread as well.

It's incorrectly mentioned that the PPF is a retirement account like the 401K/IRA. It is NOT a retirement account - it's only a 15y term deposit and can be closed upon maturity without any penalty regardless of age of the account holder.

Also, per IRS, the PPF is not deemed to be a retirement account: Overview of US Tax Compliance for Taxpayers from India - Lexology - hence it's interest is fully reportable and taxable in the US. Analogically it may be treated similarly in Canada - the PPF is considered a 'retirement supplement' according to the Indian Income Tax Act, but it's not a retirement vehicle like the RRSP/401K/IRA.

(It may sound funny how I am leaning towards actually paying the tax to the CRA, but it's really hard to find evidence or guidance for the contrarian scenario/exemption of the PPF as a tax-free vehicle outside of India; and with the CRA/IRS, I've always tended to tread with an abundance of caution.)

 

[jclarke99]

Seems like a reasonable course of action.
Regarding U.S. Govt bonds - some recommend selling them before moving from the U.S. to Canada to avoid the eventual double taxation.
While your PPF would presumably only be taxable in Canada, I guess your other option is to redeem them and avoid the whole tax matter.

 

[8494193]

Seems like a reasonable course of action.
Regarding U.S. Govt bonds - some recommend selling them before moving from the U.S. to Canada to avoid the eventual double taxation.
While your PPF would presumably only be taxable in Canada, I guess your other option is to redeem them and avoid the whole tax matter.

Good point on the US Bonds.

Yeah, I'm thinking of moving those monies into something like ETFs on this side of the border to defer taxes including putting them into TFSA/RRSPs where contribution room permits.