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QUESTION:
Hello,
I am a GC holder whom has recently applied for U.S. citizenship =
recently. Six months ago I purchased a house in Canada as I was =
planning to get a commuter green card and continue to work here in the =
U.S. I have since changed my mind and decided to wait it out and get my =
U.S. citizenship. My question is this, am I taxable to Canada for =
owning a house there for this year, no one lives in the house? If it =
matters, I go check visit once a month to make sure things are in order. =
=20
Thanks again. XXXXXXX
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The mere ownership of the house does NOT make you taxable in Canada. If =
your intention to return to Canada and live in it was known, the CRA =
might want to take a run at you but would not win from what you have =
told me.
Rent the house out now to a stranger. It will be money in your pocket =
and remove the possibility of your being attacked.
You will need to have a rental agent sign an NR-6 for you before you =
rent it and the agent must file an NR4 Summary and supplementary by =
March 31st of the following year. "THEN", you have to file a section =
216(4) rental return by June 30th of the following year.
The NR-6 follows:
http://www.ccra-adrc.gc.ca/E/pbg/tf/nr6/nr6-00e.pdf
Also, read the Judge Teskey decision in the Dennis Lee case which =
follows:
Read the following David MacLean (Saudi Arabia) and Dennis Lee Case and =
the Judge Teskey Decision.
So what are the rules?
Well, to leave Canada for tax purposes, you must give up clubs, bank =
accounts, memberships, driving licenses, 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.
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.
** 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.
OUT OF CANADA AND RESIDENT - IN CANADA AND NON-RESIDENT
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.
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.
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.
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.
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 licenses or club memberships, etc.
Judge Teskey said:
"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":
- past and present habits of life;
- regularity and length of visits in the jurisdiction asserting =
residence;
- ties within the jurisdiction;
- ties elsewhere;
- permanence or otherwise of purposes of stay;
- 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);
- residence of spouse, children and other dependent family members in a =
dwelling maintained by the individual in Canada;
- memberships with Canadian churches, or synagogues, recreational and =
social clubs, unions and professional organizations (left out mosques);
- registration and maintenance of automobiles, boats and airplanes in =
Canada;
- holding credit cards issued by Canadian financial institutions and =
other commercial entities including stores, car rental agencies, etc.;
- local newspaper subscriptions sent to a Canadian address;
- rental of Canadian safety deposit box or post office box;
- subscriptions for life or general insurance including health insurance =
through a Canadian insurance company;
- mailing address in Canada;
- telephone listing in Canada;
- stationery including business cards showing a Canadian address;
- magazine and other periodical subscriptions sent to a Canadian =
address;
- Canadian bank accounts other than a non-resident account;
- active securities accounts with Canadian brokers;
- Canadian drivers licence;
- membership in a Canadian pension plan;
- holding directorships of Canadian corporations;
- membership in Canadian partnerships;
- frequent visits to Canada for social or business purposes;
- burial plot in Canada;
- legal documentation indicating Canadian residence;
- filing a Canadian income tax return as a Canadian resident;
- ownership of a Canadian vacation property;
- active involvement with business activities in Canada;
- employment in Canada;
- maintenance or storage in Canada of personal belongings including =
clothing, furniture, family pets, etc.;
- obtaining landed immigrant status or appropriate work permits in =
Canada;
- severing substantially all ties with former country of residence.
"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."
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.
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.
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.
Even a car you do not own can make you a resident as the next sailor =
found out.
In 1988, Frederick Reed 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.
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.
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.
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.
Hope this helps
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321=20
New email to [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed =
information or consultation and is to be regarded only as general =
comment. Nothing in this message is or should be construed as advice =
in any particular circumstances. No contract exists between the reader =
and the author and any and all non-contractual duties are expressly =
denied. All readers should obtain formal advice from a competent and =
appropriately qualified legal practitioner or tax specialist in =
connection with personal or business affairs such as at www.centa.com. =
If you forward this message, this disclaimer must be included."
Be ALERT, the world needs more "lerts"
Answers to this and other similar questions can be obtained free on Air =
every Sunday morning.
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Those outside of the Lower Mainland will be able to listen on the =
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www.600AM.com=20
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