Keeping my investments in - moving to Mexico - Articles X and XI of Mexico Treaty- Dan Walkow SEABANK CAPITAL - Darell Thompson
This seems personal and you might think - :I know that person Delores
from Red deer - However, I have combined the thoughts from a couple of
different emails on the same question into one.
david ingram
QUESTION:
I understand most of the things I have to do when I move to Mexico. I will be renting out my Condo just in case I want to come back. My other real estate investment I will have will be an empty lot. I would like to keep my investment portfolio in Canada. I have an international bank that is setting up an international account for me. I am 41 and I am moving to Mexico due to health issues. I need a sunny climate, want to be relatively close to Canada, and just love Mexico. I lived in the US for 10 years, and moved back to Canaday 2 years ago. I already did all the paying capital gains on the value of my stock at the time of my move and have since liquidated all but my 401K (about 200,000 in the 401K). I will have aprox 2 Million in investments in Canada and have asked that my Investment Manager generate $3500.00 income per month. I do not want to move my investments at this time. I know my Canadian investment councellor (and company) can not sell me product. I am
really happy with the company. I will invest aprox 100K in Mexico i
n money market and ceta's. So the majority of my income will be generated in Canada. And the majority of my investments will be in Canada.
Mexico (including home) $550,000K
US (401K $200,000)
Canadian property (450K)
Canadian investments (2 Million)
Also, I have not filed US income tax since I left. I do have documents showing I left and did turn in my Green Card. Always filed taxes in both countries when I had income in both.
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david ingram replies:
You have no more responsibility to the US other than to pay tax to
the US on the pension when it comes out of the 401(K) under article
XIX of the US Mexico tax treaty (which I expect to change to paying 15%
tax to the USA in the next 14
years to ,match other US Treaties).
The present US / Mexico treaty states
ARTICLE 19
Pensions, Annuities, Alimony, and Child Support
1. Subject to the provisions of Article 20 (Government Service):
a) pensions and other similar remuneration derived and beneficially
owned by a resident
of a Contracting State in consideration of past employment by that
individual or another
individual resident of the same Contracting State shall be taxable only
in that State; and
b) social security benefits and other public pensions paid by a
Contracting State to a
resident of the other Contracting State or a citizen of the United
States shall be taxable only in
the first-mentioned State.
2. Annuities derived and beneficially owned by an individual resident
of a Contracting State shall be
taxable only in that State. The term "annuities" as used in this
paragraph means a stated sum paid
periodically at stated times during a specified number of years, under
an obligation to make the
payments in return for adequate and full consideration (other than
services rendered).
With regard to your investments in Canada, you are governed by Articles
X and XI of the Mexico / Canada Tax Treaty. With an FM2 visa, under
the treaty, you are taxable on your world income in Mexico and will pay
10% to Canada on any interest received from Canada and 15% tax to
Canada on any dividends received. As a Non-resident of Canada, you are
NOT taxable in Canada on any capital gains made from the sale of any
publicly traded stock.
You will have to file a section 216(4) return to report the rental
apartment. This also means that you need to have a Canadian Agent who
will sign form NR-6 and then file NR4 for you each year.
You WILL be taxable first by Canada if and when you sell the lot or
condo as a
non-resident and have to file Canadian forms T2062 and T2062A.
The relative parts of the treaty are reproduced here.
Article 10
Dividends
1. Dividends
paid by a
company which is a resident of a Contracting State to a resident of the
other Contracting State may be taxed in that other State.
2. However,
such dividends
may also be taxed in the Contracting State of which the company paying
the dividends is a resident and according to the laws of that State,
but if the beneficial owner of the dividends is a resident of the other
Contracting State, the tax so charged shall not exceed:
a) 5 per
cent of the gross
amount of the dividends if the beneficial owner is a company that
controls directly or indirectly at least 10 per cent of the voting
power in the company paying the dividends; and
b) 15 per
cent of the
gross amount of the dividends, in all other cases.
The
provisions of this
paragraph shall not affect the taxation of the company in respect of
the profits out of which the dividends are paid.
3. The term
"dividends" as
used in this Article means income from shares, "jouissance" shares or
"jouissance" rights, mining shares, founders' shares or other rights,
not being debt-claims, participating in profits, as well as income
which is subjected to the same taxation treatment as income from shares
by the laws of the State of which the company making the distribution
is a resident.
4. The
provisions of
paragraphs 1 and 2 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business
in the other Contracting State of which the company paying the
dividends is a resident, through a permanent establishment situated
therein and the holding in respect of which the dividends are paid is
effectively connected with such permanent establishment. In such case
the provisions of Article 7 shall apply.
5. Where a
company which is
a resident of a Contracting State derives profits or income from the
other Contracting State, that other State may not impose any tax on the
dividends paid by the company, except insofar as such dividends are
paid to a resident of that other State or insofar as the holding in
respect of which the dividends are paid is effectively connected with a
permanent establishment situated in that other State, nor subject the
company's undistributed profits to a tax on undistributed profits, even
if the dividends paid or the undistributed profits consist wholly or
partly of profits or income arising in such other State.
6. Nothing
in this
Convention shall be construed as preventing a Contracting State from
imposing on the earnings of a company attributable to a permanent
establishment in that State, a tax in addition to the tax which would
be chargeable on the earnings of a company which is a national of that
State, except that any additional tax so imposed shall not exceed 5 per
cent of the amount of such earnings which have not been subjected to
such additional tax in previous taxation years. For the purpose of this
provision, the term "earnings" means the profits or income attributable
to a permanent establishment or immovable property in a Contracting
State and gains that may be taxed in that State in accordance with the
provisions of Article 13 after deducting therefrom all taxes, other
than the additional tax referred to herein, imposed in that State on
such profits, income or gains.
7. The provisions of this
Article shall not
apply if it was the main purpose or one of the main purposes of any
person concerned with the creation or assignment of the shares or other
rights in respect of which the dividend is paid to take advantage of
this Article by means of that creation or assignment.
Article 11
Interest
1. Interest
arising in a
Contracting State (CANADA) and paid to a resident of the other
Contracting State (MEXICO) may be taxed in that other State (MEXICO).
2. However,
such interest
may also be taxed in the Contracting State (CANADA) in which it arises
and according to the laws of that State (CANADA), but if the beneficial
owner of the interest is a resident of the other Contracting State
(MEXICO), the tax so charged shall not exceed 10 per cent of the gross
amount of the interest.
3.
Notwithstanding the
provisions of paragraph 2:
a)
interest arising in a
Contracting State (CANADA) may be taxed only in the other Contracting
State (MEXICO) where the beneficial owner is a resident of that other
State and the person paying the interest or the recipient thereof is a
Contracting State (CANADA) or its central bank, or a political
subdivision or local authority thereof; (CSB's Tax Free in Canada but
taxable in Mexico)
b)
interest arising in
Mexico and paid to a resident of Canada who is the beneficial owner
thereof shall be taxable only in Canada if it is paid in respect of a
loan having a term of not less than three years made, guaranteed or
insured, or a credit for such period extended, guaranteed or insured,
by Export Development Canada, or by any other institution as may be
agreed to from time to time between the competent authorities of the
Contracting States;
c)
interest arising in
Canada and paid to a resident of Mexico who is the beneficial owner
thereof shall be taxable only in Mexico if it is paid in respect of a
loan having a term of not less than three years made, guaranteed or
insured, or a credit for such period extended, guaranteed or insured,
by Banco Nacional de Comercio Exterior, S.N.C. or Nacional Financiera,
S.N.C., or by any other institution as may be agreed to from time to
time between the competent authorities of the Contracting States;
d)
interest arising in a
Contracting State and paid to a resident of the other Contracting State
which was constituted and is operated exclusively to administer or
provide benefits under one or more pension, retirement or other
employee benefits plans shall not be taxable in the first-mentioned
State provided that:
(i) the
resident is the
beneficial owner of the interest and is generally exempt from tax in
the other State;
(ii) the
interest is not
derived from carrying on a trade or a business; and
(iii)
the interest is
not derived from a related person.
4. The term
"interest" as
used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage, and in particular, income from
government securities and income from bonds or debentures, including
premiums and prizes attaching to such securities, bonds or debentures,
as well as income which is subjected to the same taxation treatment as
income from money lent by the laws of the State in which the income
arises. However, the term "interest" does not include income dealt with
in Article 8 or Article 10.
5. The
provisions of
paragraphs 1 and 2 shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business
in the other Contracting State in which the interest arises through a
permanent establishment situated therein and the debt-claim in respect
of which the interest is paid is effectively connected with such
permanent establishment. In such case the provisions of Article 7 shall
apply.
6. Interest
shall be deemed
to arise in a Contracting State when the payer is a resident of that
State. Where, however, the person paying the interest, whether that
person is a resident of a Contracting State or not, has in a
Contracting State a permanent establishment in connection with which
the indebtedness on which the interest is paid was incurred, and such
interest is borne by such permanent establishment, then such interest
shall be deemed to arise in the State in which the permanent
establishment is situated.
7. Where, by
reason of a
special relationship between the payer and the beneficial owner or
between both of them and some other person:
a) the
amount of the
interest exceeds, for whatever reason, the amount which would have been
agreed upon by the payer and the beneficial owner in the absence of
such relationship, the provisions of this Article shall apply only to
the last-mentioned amount. In such case, the excess part of the
payments shall remain taxable according to the laws of each Contracting
State, due regard being had to the other provisions of this Convention;
b) the
conditions
(including amount) of the debt-claim differ from those that would have
been agreed upon by the payer and the beneficial owner in the absence
of such relationship, the interest thereon may be taxable according to
paragraph 2 of Article 10.
8. The
provisions of this
Article shall not apply if it was the main purpose or one of the main
purposes of any person concerned with the creation or assignment of the
debt-claim in respect of which the interest is paid to take advantage
of this Article by means of that creation or assignment.
------------------------
To eliminate double taxation, Article 21 (2) states
2. In the
case of Mexico,
double taxation shall be avoided as follows:
a)
residents of Mexico may
credit against the Mexican tax on income arising in Canada the income
tax paid in Canada in any amount not exceeding the tax payable in
Mexico on such income; and
------------------
I have put the country names in brackets in the Article X section above
to show you what it means.
As you can see, the items taxed in Canada are absolutely taxable in
Mexico. Mexico can write to the CRA and find out about every single
cent reported to you in Canada
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When you leave Canada, be sure to file forms 1161, 1243 and 1244. If
your accountant does not recognize those form numbers right away
(without looking them up) you should NOT use that accountant.
You can always send your tax work here because we specialize in dealing
with people who are living out of Canada in another 30 or 40 different
jurisdictions at any one time. My associate, david Holroyd is a
Canadian from Rocky mountain House who has lived in Guadalajara's for
the last 18 years and is now a Mexican citizen. He comes to Vancouver
for 4 months a year to help in my international practice. country
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If you would rather deal with someone more local to you, I recommend
the following:
Gary Gauvin is absolutely qualified to deal with you. He
is an old business partner of mine from Ottawa. He now practices
outside of Dallas Texas as a one or 1 1/2 person office. If you deal
with Gary, you will deal with Gary. He is a US enrolled agent. You
can find his website easily. Type - income Tax Expert - into
google. Gary will come up as number one or two. Why, because he is.
If I am looking for a first or second opinion, I call Gary.
Disadvantage -
Gary is a one and a half person office. Advantage - You will always
get to talk to Gary.
Gary likes corporations. I and my four associates do not like
them. I like dealing with individuals who deal cross-border withOUT
corporations.
OR KPMG in Vancouver. The last time I checked they
had 22 people in their US/Canada department. call (604) 691-3025.
Advantage - Lots of Backup. Disadvantage - It will be hard to get the
same person to deal with you three times in a row.
OR Steve Peters with KPMG in Halifax (902) 492-6011
OR Kevin Nightingale in Toronto (416) 733-9595
OR Len Vandenberg with BDO Dunwoody in Kelowna, BC.
(250) 763-7600
OR Steve Katz in Vancouver at (604) 732-1515
OR Brad Howland in Victoria at (250) 598-6258
And remember, even if you make the payments, your BC Medical is void 90
days after you leave Canada. I have had clients in your position
billed over $100,000 a dozen times because they came back to Canada for
medical services after leaving the country. My first person in this
position was in 1995 and he and his wife were living in Mazatlan. They
were caught because he told his story at a 'Canadian club' group
meeting and they reported it as something to do in their newsletter and
someone asked BC Medical if it was okay to do that and they said no and
went after the person.
I have had people billed ten years later for everything from Kidney
Transplants to breast and prostate cancer. Be careful what you say in
public meetings about your situation. It can cause tax, medical and
border problems.
If you are buying insurance, make sure it covers pre-existing
conditions. For instance having gastric by-pass surgery would cancel
any insurance on anything to do with that procedure, Have a problem and
you could lose everything you own with one medical condition. Having
had congestive heart failure, I am stuck with staying here. (also
considering gastric by-pass but heart condition likely makes too risky).
Last but not least, leaving your money where it can NOT be changed is
not very with it in my opinion. Some people do specialize in dealing
with people out of the country as the following shows:
Two ethical people who specialize in selling securities, RRSPs, etc.,
to US citizens in Canada or Canadians in the US or other countries are:
Mr Darrell Thompson
Blackmont Securities
Toronto
Local (416) 874-8007
LD (866) 775-7704
www.blackmont.com
AND
Dan Walkow
Seabank Financial
White Rock
Local (604) 541-9952
L D (866) 541-9952
www.seabankcapital.com
__
These two individuals and their companies have gone to the effort to
get themselves registered just about everywhere so they can deal with a
Canadian in Florida or California or Nevada, etc.
____________________________________
Note that because of their specialty, they tend to deal with accounts
in excess of $200,000
However, I am sure that both parties would welcome an exploratory call.
Hoping this helps, i remain
david ingram
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SUGGESTED PRICE GUIDELINES - May 17, 2008
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604)
980-0325
Calls welcomed from 10 AM to 9 PM 7 days a week
Vancouver (LA) time - (please do not fax or
phone outside of those hours as this is a home office) expert US Canada Canadian American
Mexican Income Tax service help.
pert US Canada
Canadian American
Mexican Income Tax service and help.
David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
family, estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence & authority.
Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST for in
person or if you are on the telephone in
Canada) expert US Canada Canadian American
Mexican
Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.
$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and
you moved in and out of the country.
This is just a guideline for US /
Canadian returns
We will still
prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up. However, if
you have a stack of
1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an
average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or
T101 --- Income trusts with amounts in box 42 are an even larger
problem and will be more expensive. - i.e.
20 information slips will be
at least $350.00
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.
Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to
$100.00 each.
18 RRSPs would be $900.00 - (maybe
amalgamate a couple)
Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time
consuming and hard to keep track of when they come in multiple files.
As of May 1, 2008, we will charge or be charging a surcharge for
information that comes in more than two files. It can take us a
valuable hour or more to try and put together the file when someone
sends 10 emails or 15 attachments, etc. We had one return with over 50
faxes and emails for instance.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
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