Non-Resident Canadian under UAE/Canada Treaty. Working in Dubai (Canadian Citizen) -

QUESTION:
URGENT REQUEST 
Please reply
Hi, 
I am a Canadian Citizen. I landed Sept 2000. I am an Indian national as well. For purposes of taxation, I understand that I need to be a ‘non resident’.
I am now being offered a new job in Dubai by a local incorporated. My salary will be paid UAE currency. 
I understand that I am allowed to live outside Canada if I am employed on a full time basis.
I will not have any ties with Canada. Also, i am not paying income taxes in UAE (no taxes) nor in my home country India (non-resident status)
My query is whether I have to pay income tax for my salary earned outside Canada?! More specifically, I would like to know whether 
1) The tax treaty between United Arab Emirates & Canada will apply for me? 
2) Will my status for purposes of taxation in Canada be ‘Non Resident’?
3) If I have to pay taxes in Canada, is it to be paid on the total remuneration or only on the basic salary? (deducting for example - living expenses) 
I have called CCRA couple of times. They advised me that I'd be treated as a Candian Resident for tax purpose as I am not a UAE National.
Thanks in advance for your advice!
  -------------------------------
david ingram replies:
I received a dozen of these in the last two days and am answering two because they are just a little different.
1.  There is nothing enforceable here.  The concept was okay but in my opinion Canada left this wide open so that they could continue to tax Canadians more easily.  Stay out of Canada for at least two years AND even after two years limit visits to a couple of weeks a year.
2.   It should be - Make sure you ARE a non-resident and get rid of everything which looks wrong.  No driver's licences.  No medical cards - a non-resident bank account if you must but why do you need a Canadian Account
3.   If you get caught by Canada, it would be on the total including living expenses.  However, id you stay out of Canada, do not have a Canadian mailing address, etc., you should not be taxed.  Read the following which is similar.
------------------
Dear David,
I live in Edmonton, I read your article online re: Tax Treaties between Canada and UAE.
 
I am a Canadian citizen and am offered a Job in UAE. 
I am under the impression that as long as I am severing all my ties with Canada like closing bank account, taking my family with me, selling my house etc, I would not be required to pay income tax's on worldwide income.
Upon contacting CCRA International Tax Department I was told that under the Canada-UAE tax treaty,(which covers UAE Nationals only),  I  (as a person on resident permit in UAE) have to pay income tax on my UAE income. Sounds stupid. 
According to CCRA I have to be a resident of somewhere in order to be taxed. As I am NOT an ARAB by birth therefore can not be UAE citizen I would be deemed to be a Canadian Resident for Income tax purposes. 
I contacted the Ministry of Finance and Foreign affairs and they advised me that I would be treated a NON-Resident for TAX purposes. 
It seems our govt departments don't know who's saying what. 
It seems that they themselves do not know what they were talking about. 
For some reason this does not make sense to me. This means that for Canadian Citizens, UAE is no more a TAX FREE country.
Can you please advise based on your extensive experience.
They are making me and a number of friends confused.
  
I would appreciate your reply. 
  
Regards 
--------------------------------
david ingram replies:
They are both right.
The UAE tax treaty is very ineffective for Canadians.
To be tax free, you, your spouse and children should stay out of Canada for at least two years in my opinion.  If it is necessary to see someone, fly them to visit you or meet them in Greece.
Or, fly to LA and have everyone meet you for a visit to Disneyland.  
This is opinion only.  There is no law, or interpretation bulletin which will be any better.
However, in my practice of 45 years now, I have never had someone taxed who was away fro two years and did not have a house available for them to move back into 'today'.
You can however, keep your house as long as it is rented out to a stranger and I recommend that you do so.
The following should help you understand it.
Hi
I am a registered nurse here in Ontario Canada and I am interested in going to Saudi Arabia for a year or two to work.  I will have to sever my ties with Canada.  I have loans I am paying so I will still have a bank account.  Other nurses  I have known as kept there drivers license.  Will I still betaxed if I keep my drivers license?  I don't own a home or a car so that won't be a problem.  What would you do in my situation?  I was also told I can keep my Visa but will cancel everything else.
Thank you 
--------------------------------------------------------------------
david ingram replies:
Keeping a driver's licence AND a visa card is asking to be taxed if you are only gone for a year or two.
Keeping the bank account as a non-resident account is fine.
Read Judge Teskey's decision in the Dennis Lee case.
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": 
  a.. - past and present habits of life; 
  b.. - regularity and length of visits in the jurisdiction asserting residence; 
  c.. - ties within the jurisdiction; 
  d.. - ties elsewhere; 
  e.. - permanence or otherwise of purposes of stay; 
  f.. - 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); 
  g.. - residence of spouse, children and other dependent family members in a dwelling maintained by the individual in Canada; 
  h.. - memberships with Canadian churches, or synagogues, recreational and social clubs, unions and professional organizations (left out mosques); 
  i.. - registration and maintenance of automobiles, boats and airplanes in Canada; 
  j.. - holding credit cards issued by Canadian financial institutions and other commercial entities including stores, car rental agencies, etc.; 
  k.. - local newspaper subscriptions sent to a Canadian address; 
  l.. - rental of Canadian safety deposit box or post office box; 
  m.. - subscriptions for life or general insurance including health insurance through a Canadian insurance company; 
  n.. - mailing address in Canada; 
  o.. - telephone listing in Canada; 
  p.. - stationery including business cards showing a Canadian address; 
  q.. - magazine and other periodical subscriptions sent to a Canadian address; 
  r.. - Canadian bank accounts other than a non-resident account; 
  s.. - active securities accounts with Canadian brokers; 
  t.. - Canadian drivers licence; 
  u.. - membership in a Canadian pension plan; 
  v.. - holding directorships of Canadian corporations; 
  w.. - membership in Canadian partnerships; 
  x.. - frequent visits to Canada for social or business purposes; 
  y.. - burial plot in Canada; 
  z.. - legal documentation indicating Canadian residence; 
  aa.. - filing a Canadian income tax return as a Canadian resident; 
  ab.. - ownership of a Canadian vacation property; 
  ac.. - active involvement with business activities in Canada; 
  ad.. - employment in Canada; 
  ae.. - maintenance or storage in Canada of personal belongings including clothing, furniture, family pets, etc.; 
  af.. - obtaining landed immigrant status or appropriate work permits in Canada; 
  ag.. - 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%. 
SUGGESTED PRICE GUIDELINES - Aug 5, 2008
 
david ingram's US / Canada Services
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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.
--IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-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 for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com.  If you forward this message, this disclaimer must be included." -
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