I am Canadian citizen who moved to Qatar (Doha) with family (wife and
two children) on July 01, 2004. I had worked as self-employed (on
contract) for the first six months last year (2004) and from July 17,
2004 I have been working for Qatar Petroleum.
I have a house in Vancouver (Coquitlam) and I have rented it. I am a
resident of Qatar and my children go to American School here in Doha.
Can you deemed my status to be non resident in the context of the
Income Tax Act?
Regards,
==========================================================
david ingram replies:
If you are all in Qatar and abolished all your ties with Canada
including driver's licences, medical cards and securities accounts,
you should be a non-resident of Canada.
However, you MUST file forms T1161, T1243 and T1244 to report any
deemed dispositions and pay tax on your Jan to June final return on
any Home owner's Plan outstanding debt and then file a Section 216(4)
income tax return for the rent received from July to December.
http://www.cra-arc.gc.ca/E/pbg/tf/t1161/t1161-04e.pdf
http://www.cra-arc.gc.ca/E/pbg/tf/t1243/t1243-04e.pdf
http://www.cra-arc.gc.ca/E/pbg/tf/t1244/t1244-04e.pdf
I would be happy to look after these for you.
And, of course, you can listen to the Sunday morning radio show while
preparing dinner in Qatar.
Read the following from the Dennis Lee and David McLean and Wolf
Bergelt cases to get a feel for the actual paperwork.
IF I LIVE IN THE CAYMANS OR A TAX FREE COUNTRY,CAN I GET AWAY WITH
PAYING NO TAX.AS I AM A DAY TRADER.
================================================
david ingram replies:
If you are an American Citizen living anywhere in the world, you must
still file a US Income tax return no matter where you live, no matter
what you work at, no matter where the money is paid from. You must
also pay tax on any investment income from another country as well as
the US.
If you are a Canadian citizen living in a third country without an
income tax treaty with Canada (such as the Caymans), you do not have
to file a tax return in Canada if you have given up your Canadian
medical, your Canadian driver's licences, Canadian Credit Cards, union
memberships, house, apartment, cars, etc. You can have a non-resident
bank account, keep your RRSP accounts (don't buy more), and even keep
your family house and investment real estate if it is rented out to
strangers on one year (or more) leases.
If you are in any one of the 100+ countries that Canada has a treaty
with, Article IV of the treaty kicks in and taxes you on world income
in the country with which your closer connections can be determined.
The following answer to a previous question and the included tax cases
will give you an idea. It is a small part of the US/Canada Income tax
section which you can find at www.centa.com. Pay attention to The
Judge Teskey decision in Teskey.
I have repeated an older question to give you a different look at it.
=================
Hello
I'm making a permanent move out of Canada November 15/2004 and also =
retiring on the same date. On January 1, 2005, I will receive a one =
time lump sum payment from my employer for banked overtime. The
payment =
will be included on my 2005 T-4 slip. Will this payment affect
Revenue =
Canada's ruling as to me being deemed a non resident of Canada
beginning =
January 1, 2005? =20
Please acknowledge receipt of this email and I will happily forward my
=
MasterCard number to you so you can charge me the appropriate amount.
Sincerely,=20
---------------------------------------------
david ingram replies
This barely got to me and had been dumped by the system because it
went to the board as a reply (I think) which it will not accept.
questions should go to taxman at centa.com
In and of itself, the T4 in 2005 does not make you a resident of
Canada. Other items will be the defining factor. For instance, if
you go to live in any tax treaty country, Article IV of the treaty
governs your residency for tax purposes.
If you go to Panama or the Caymans or Bahamas, you have to pay real
attention to anything Canadian. I say that to be "sure", you stay out
of Canada for two full years.
No visits to kids,
No visits to ex wives
No bank accounts except a non-resident account with tax being withheld
at source
no Provincial driver's licence
No furniture in storage
BUT renting your old house out to a stranger on a long term basis is
fine
If someone needs to visit with you, "YOU" go to Niagara Falls New York
or Calais, Maine or Pembina North Dakota or Bellingham in Washington
and have your friends come down and visit you in the US for that first
two years.
Well read the following:
So what are the rules?
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.
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 licences 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."
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.
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.
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.
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.
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.
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.
DEBT SECURITIES - BANK ACCOUNTS
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 10 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.
Answers to this and other similar questions can be obtained free on
Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee
Wealth Management (formerly Cartier Partners ) and I will be hosting
an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the
internet at
www.600AM.com
Local phone calls to (604) 280-0600 - Long distance calls to
1-866-778-0600.
Old shows are archived at the site.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321
davidingram at shaw.ca
www.centa.com www.david-ingram.com
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