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QUESTION:
Any help is truly appreciated for the 2 Canadian residency related =
questions
below - many many thanks in advance!!!!!
---------------------------------------------
My wife and I left Canada in 1999. The only ties we have are Ontario =
driving
licenses and one non-resident online trading account each in Canada with
almost no activity (except for 25% withholding interest tax and some =
stock
purchases (may I add losses) - during the past 4-5 years. Note the =
purchases
were done as a non-resident.
Does this alone jeopardize our non-residency status?
--------------------------------------------
We have been living in Saudi Arabia during this time where I have been
working for a local firm here.
My wife visits her family in Canada usually anywhere from 2wk to 3 =
months
max per any given calendar year.
I understand that my wife can visit Canada no more than 6 months per =
calndar
year whereby we may jeopardize our non-residency.
My question:
If my wife stays in Canada from OCTOBER through APRIL (7 months =
straight),
will we jeoparize in any way our non-residency status?
(since this is technically 3 months in the 1st yr and 4 months in the
following yr).
--------------------------------------------
Also returning to Canada is a definite possibility in the near future =
since
the problems/tension occuring in Saudi these days. What is the best way =
to
contact you for consultation prior to entering Canada?
Just to clarify:
My wife and I do believe we have established residential ties in Saudi - =
we
have been renting an apartment during the 5 years - opened local bank
accounts here, I have a Saudi driving license since 99, local credit =
cards,
bought car here with local insurance company, have residence/work =
permits,
all mail comes to Saudi etc etc etc
--------------------------------------------------------
david ingram replies:
Keeping two securities accounts, driver's licences and visiting in =
Canada for three months at a time from Saudi Arabia leaves you open for =
Canadian Taxation in my opinion. Read Jufdge Teskey's decision in =
Dennis Lee below.
I am including a couple of pages from my 1991 Income Tax Guide. Note =
that the enforcement is more stringent now.
I think anything more than a month in Canada for your wife is dangerous.
Read the following and make your own decision. However, I have been =
doing this for 36 years now and specialize in out of country people.
So what are the rules?=20
Well, to leave Canada for tax purposes, you must give up clubs, bank =
accounts, memberships, driving licences, provincial health care plans, =
family allowance payments (if you are a returning resident, you can =
continue to get Family Allowance out of the country), your car, and =
furniture. You can keep a house here as an investment and rent it out, =
but it must be rented on lease terms of a year or more. And you MUST =
have an agent sign an NR6 for you (see example). This NR6 has the =
Canadian Resident AGENT ** guarantee the Canadian Government that if YOU =
do not pay your tax to Canada, the AGENT WILL. Even after fulfilling the =
foregoing, the Canadian government can still tax you or "try" to tax you =
on your income out of the country. If you are being paid by a Canadian =
Company, they can quite often succeed.=20
Even though you can collect family allowance out of the country, don't! =
One client's wife found out that she could get family allowance out of =
the country if she said they were coming back to Canada. She got some =
$3,000 of family allowance and cost the family some $80,000 in income =
tax when they came back to Canada from Brazil. I will never forget the =
husband's expression when he found out why he had been reassessed and I =
will never forget his wife's explanation. She said he was a skinflint =
and never gave her any money. The total episode cost them their house.=20
** The "agent" referred to above can be a friend, relative, or a =
business such as ours. We charge a minimum of $40.00 per month to be an =
"AGENT" for an NR-6 filing. This $480 per year is "in addition" to any =
other fees but "well worth it" of course. It stops your mother, father, =
brother, next door neighbour or ex-best-friend from being plagued by =
paperwork they do not understand.=20
OUT OF CANADA AND RESIDENT - IN CANADA AND NON-RESIDENT=20
It is possible to be physically "in Canada" and be treated as a =
Non-Resident and it is possible to be out of the country for seven =
years, or never have even lived in Canada, but wanted to, and be taxed =
as a Canadian resident as the following three cases show. In case you =
missed it, the reason for the different rulings is the "INTENT" of the =
parties involved. Wolf Bergelt intended to leave Canada. David MacLean =
was only working out of the country. He still maintained a residence =
and could not ever become a resident of Saudi Arabia anyway. Dennis Lee =
"wanted" to live in Canada.=20
In 1986, Wolf Bergelt won non-resident status before Judge Collier of =
the Federal Court, even though he was only out of the country for four =
months and his family stayed behind to sell his house. He had given up =
his memberships, kept only one bank account and rented an apartment in =
California until his house in Canada was sold. Four months after his =
move, his company advised him that he was being transferred back to =
Canada. Judge Collier said his move was a permanent (although short) =
move and he was a non-resident for tax purposes for those four months.=20
In 1985, David MacLean lost his claim for non-residence status even =
though he was gone for seven years. He kept a house and investments in =
Canada and returned a couple of times a year to visit parents. He had =
even been to the Tax Office and received a letter on January 29, 1980 =
stating that his Canadian Employer could waive tax deductions because he =
was a non-resident. However, he did not advise his banks, etc. that he =
was a non-resident so that they would withhold tax, he did not rent his =
house out on a long term lease and he did not do any of the things that =
makes a person a "NON-RESIDENT". Judge Brule of the Tax court of Canada =
said that he thought Mr. MacLean had stumbled on the non-resident status =
by chance rather than by design. In other words, to become a =
non-resident of Canada, you must become a bone fide resident of another =
country. As a rule, only a Muslim born in Saudi Arabia to Saudi Arabian =
parents can become a Saudi Arabian citizen. The best that David MacLean =
can hope for is that he has a Saudi Arabian temporary work permit.=20
In other words, when a person leaves a place, they usually leave and =
establish a new identity where they are because the "new place" is where =
they live now. Trying to "look" like a non-resident is not the same as =
"BEING" a non-resident - think about it.=20
In 1989, Denis Lee won part but lost most of his claim for non-resident =
status. He was a British Subject who worked on offshore oil rigs. He =
maintained a room at his parents house in England and held a mortgage on =
his ex-wife's house in England. For the years 1981, 82 and 83 he did not =
pay income tax anywhere. in 1981 he married a Canadian and she bought a =
house in Canada in June of 1981. On September 13, 1981, he guaranteed =
her mortgage at the bank and swore an affidavit that he was "not" a =
non-resident of Canada. [As I have said in the capital gains section of =
this book, bank documents will get you every time.] During this time he =
had a Royal Bank account in Canada and the Caribbean but no Canadian =
driver's licences or club memberships, etc.=20
Judge Teskey said:=20
"The question of residency is one of fact and depends on the specific =
facts of each case. The following is a list of some of the indicia =
relevant in determining whether an individual is resident in Canada for =
Canadian income tax purposes. It should be noted that no one of any =
group of two or three items will in themselves establish that the =
individual is resident in Canada. However, a number of the following =
factors considered together could establish that the individual is a =
resident of Canada for Canadian income tax purposes":=20
- past and present habits of life;=20
=20
- regularity and length of visits in the jurisdiction asserting =
residence;=20
=20
- ties within the jurisdiction;=20
=20
- ties elsewhere;=20
=20
- permanence or otherwise of purposes of stay;=20
=20
- ownership of a dwelling in Canada or rental of a dwelling on a =
long-term basis (for example, a lease of one or more years);=20
=20
- residence of spouse, children and other dependent family members =
in a dwelling maintained by the individual in Canada;=20
=20
- memberships with Canadian churches, or synagogues, recreational =
and social clubs, unions and professional organizations (left out =
mosques);=20
=20
- registration and maintenance of automobiles, boats and airplanes =
in Canada;=20
=20
- holding credit cards issued by Canadian financial institutions =
and other commercial entities including stores, car rental agencies, =
etc.;=20
=20
- local newspaper subscriptions sent to a Canadian address;=20
=20
- rental of Canadian safety deposit box or post office box;=20
=20
- subscriptions for life or general insurance including health =
insurance through a Canadian insurance company;=20
=20
- mailing address in Canada;=20
=20
- telephone listing in Canada;=20
=20
- stationery including business cards showing a Canadian address;=20
=20
- magazine and other periodical subscriptions sent to a Canadian =
address;=20
=20
- Canadian bank accounts other than a non-resident account;=20
=20
- active securities accounts with Canadian brokers;=20
=20
- Canadian drivers licence;=20
=20
- membership in a Canadian pension plan;=20
=20
- holding directorships of Canadian corporations;=20
=20
- membership in Canadian partnerships;=20
=20
- frequent visits to Canada for social or business purposes;=20
=20
- burial plot in Canada;=20
=20
- legal documentation indicating Canadian residence;=20
=20
- filing a Canadian income tax return as a Canadian resident;=20
=20
- ownership of a Canadian vacation property;=20
=20
- active involvement with business activities in Canada;=20
=20
- employment in Canada;=20
=20
- maintenance or storage in Canada of personal belongings including =
clothing, furniture, family pets, etc.;=20
=20
- obtaining landed immigrant status or appropriate work permits in =
Canada;=20
=20
- severing substantially all ties with former country of residence. =
=20
"The Appellant claims that he did not want to be a resident of Canada =
during the years in question. Intention or free choice is an essential =
element in domicile, but is entirely absent in residence."=20
Even though Dennis Lee was denied residency by immigration until 1985 =
(his passport was stamped and limited the number of days he could stay =
in the country) and he did not purchase a car until 1984, or get a =
drivers licence until 1985, Judge Teskey ruled that he was a =
non-resident until September 13, 1981 (the day he guaranteed the =
mortgage and signed the bank guarantee) and a resident thereafter.=20
My point is made. Residency for "TAX PURPOSES" has nothing to do with =
legal presence in the country claiming the tax. It is a question of =
fact. My thanks to Judge Teskey for an excellent list. The italics are =
mine and refer to the items which I usually see people trying to "hold =
on to" after they leave and are trying to become non-residents. No =
single item will make you a resident, but there is a point where the =
preponderance of "numbers" leap out and say, "He / She is a resident of =
Canada, no matter what he / she says." =20
The case above is not unusual in any way. It is a fairly typical =
situation in my office.=20
In 1990, John Hale was taxed as a resident on $25,000 of directors fees =
he had received from his Canadian Employer and on $125,000 he received =
for exercising a share stock option given to him when he had been a =
resident of Canada (the option, not the stock). Judge Rouleau of the =
Federal Court ruled that section 15(1) of the Great Britain / Canada Tax =
Convention did not protect the $125,000 as it was not "salaries, wages, =
and other remuneration". It was, however a benefit received by virtue of =
employment within the meaning of section 7(1)(b) of the act.=20
Even a car you do not own can make you a resident as the next sailor =
found out.=20
In 1988, FrederickReed was claimed by the Canadian Government as one of =
their own. He lived on board ship and shared an apartment with a friend =
in Bermuda but only occasionally. He also stayed with his parents in =
Canada when visiting his employer in Halifax. Judge Bonner of the Tax =
court ruled that he could not claim his place of employ or the ship as =
his residence and just because he did not have a fixed abode, did not =
make him a non-resident. He was also the beneficial owner of a car in =
Canada which even though of minor consequence, served to add to his =
Canadian Residency. He had in fact borrowed money from a credit union to =
buy the car, even though it was registered in his father's name. He had =
maintained his Canadian Driver's licence as well.=20
An interesting case in June, 1989 involved Deborah and James Provias who =
left Canada in October of 1984. They had sold a multiple unit building =
to James' father on September 21, 1984 but the statement of adjustments =
did not take place until December 1, 1984. They tried to write off =
rental losses and a terminal loss against other income as `departing =
Canadians'. Judge Christie of the Tax Court ruled that they had left =
before the sale and were not entitled to the terminal loss or another =
capital loss as these could only be applied against income earned in =
Canada from October 13, 1984 (the day they left) to November 30, 1984 =
(the day before the sale) and there was no income, only a rental loss.=20
But June, 1989 was a good month for Henry Hewitt. He had been a =
non-resident living in Libya for four years and received some back pay =
after returning to Canada. DNR tried to tax him on the money but Judge =
Mogan of the Tax Court came to the rescue. He ruled that although =
Canadians were usually taxable on money when received, that assumed that =
the money itself was taxable in Canada, which was not true in this case. =
In 1989, James Ferguson lost his claim for non-residency status but from =
the information, it didn't stand a chance anyway. He had been in Saudi =
Arabia on a series of one year contracts for four years. His wife =
remained employed in Canada, and he kept his house, car, driver's =
licence, union membership, and master plumber's licence. Judge Sarchuk =
ruled that he had always intended to return to Canada and was a =
resident.=20
A similar situation involved John and Johnnie M. Eubanks in the United =
States. He was working on an offshore oil rig in Nigeria with a Nigerian =
work permit and attempted to claim non-resident status for the purposes =
of exempting the foreign earned income exclusion. His wife was in the =
United States at all times and because he worked 28 days on and 28 days =
off, he returned to the U.S. for his rest periods using 4 days for =
travel and 24 days for rest with his family. He did not spend any 330 =
day period (out of a year) in Nigeria and only had a residency permit =
for the purposes of working in Nigeria. Judge Scott ruled he was a =
resident of the U.S. and taxed him some $20,000 with another $6,000 =
penalties and interest.=20
The Tax departments in Canada and the U.S. issue Interpretation =
Bulletins and Information Circulars and Guidance Pamphlets. These =
documents sometimes get people in trouble because the individual reads =
the good part and doesn't pay any attention to the exceptions. The =
following case ran contrary to a Guidance Pamphlet issued by the IRS.=20
On and Off-shore Oil rigs were involved with William and Margaret Mount =
and Jesse and Mary Wells. William and Jesse worked in the United Arab =
Emirates. However, they kept their homes and families in Louisiana and =
kept their driver's licences in Louisiana and voted in Louisiana. No =
evidence was shown that they had tried to settle in The United Arab =
Emirates. Judge Jacobs turned down claimed exclusions of approximately =
$75,000 each.=20
There isn't any question about what oil rig people talk about on oil =
rigs. It has to be "how to beat the tax man". Unfortunately, they all =
seem to think it is easy. Another such story follows.=20
In 1989, Clarence Ritchie found out that bona fide residence means just =
what it says. You cannot be a non-resident of the U.S. for tax purposes =
if you are not a bona fide resident of another country. He was working =
on the Mobil Oil Pipeline in Saudi Arabia and although when he left he =
was married with a couple of kids, by the time he returned permanently, =
he was a happily divorced man. Judge Scott ruled that though he did not =
have an abode in the United States, he had not established one in Saudi =
Arabia and therefore was not entitled to the foreign earned income =
exclusion which requires you to be away for 330 days out of 365. He had =
worked a 42 days on, 21 days off schedule and usually returned to the =
U.S. for his days off although he did spend time in Tunisia, England, =
Italy and Greece.=20
On a final note, as explained on page 143 of the "PINK" 17th edition of =
my ULTIMATE TAX BOOK, it is possible to have three countries after you =
for tax. If you are thinking of taking a job because a recruiter told =
you the money is tax free, think twice and check three times with =
competent individuals about what the rules "really are". No government =
likes giving up the right to tax its citizens.=20
DEBT SECURITIES - BANK ACCOUNTS=20
Non-residents of Canada with investments in Canada are subject to a 25% =
non-resident withholding tax on any money paid to them while they are =
out of the Canada. Therefore, if they have $10,000 in the Bank of =
Montreal and they live in Argentina, The Bank of Montreal must withhold =
25 cents out of every dollar of interest paid to the account. Most tax =
treaty countries such as Great Britain, Germany, the United States, and =
Australia have a reciprocal agreement with Canada that limits the =
withholding to 15%. So we have the anomaly that a Canadian with money in =
a bank in the U.S. has no withholding but an American with money in a =
Canadian Bank has 15 cents out of every dollar withheld as a foreign =
withholding tax. The American would report his interest on schedule A of =
his 1040 tax return and claim the tax withheld as a foreign tax credit =
on a form 1116.=20
=20
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