QUESTION:
We moved from Canada on January 1st 2006. . My husband runs a business and I still work for Air Canada (22+years) commuting to the US.
The International Tax Office have helped us in putting our return together for 2006. They told us to file the request for NR status and than sent our Income Tax Returns. I still have tax deduction taken as if I am a resident of Canada.
We also have a condo in Halifax that we own for 15 years and it has been rented till recently (April 2007).
We didnt know if we were considered non residents or not as I am working for Air Canada. However from the International office we understood we can claim non residency status.
Here is our problem:
We think we needed to file NR status back in January 2006 along with NR6 and NR4 for 2006-2007.
What do we do now?
They already sent us a fine for failing the file a form stating our house in California was investment property in 2005 (which it wasnt, we have a house and two guest houses, the main house was vacant and we used it while waiting for our US visa, renting a condo in Vancouver for that period).
My husband has his assessment from Canada for 2005 at -35000k (loss).
The condo didnt generate income. Canada was taking taxes from my Salary as if I was a resident. We dont have much income and we are suffering from a major financial hardship and not sure how to proceed with CRA as we cant afford to pay penalties. We didnt hide anything. We still dont have NR status.
Do we need to file for voluntary disclosure (we don't owe money)? Do we need to file the NR6 and NR4 along with a consideration for financial hardship?
I wish I could afford your consultation fee but the big mistake of moving to the USA has cost us financially/mentally etc.. and we can barely meet our mortgage obligations. This CRA issue (done unintentionally) is gonna cause us a major financial disaster.
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david ingram replies:
1. I likely have 27 Air Canada employees who are living out of Canada at the moment. When Canadian Airlines was flying I had over 100 but an amazing number have taken early retirement or moved back to Canada three to seven years ago as their Canadian dollar lost its spending power. With the difference in the dollar now, I expect a couple of them to return to the USA.
2. It is too late for you to file a Form NR-6 for 2006 or up to today 1n 2007. An NR-6 is only effective from the day it is filed. There is no retroactivity for the form.
3. If you are flying domestically, the proper deductions for you are as a resident. If you are flying Overseas, as a non-resident, you are taxable on your flights that are over Canadian Air Space. The CRA has prepared a rather sophisticated EXCEL Spreadsheet to assist with the calculation. You can get hold of it by asking the CRA for a copy. It is, of course, of no use if you are flying domesticly.
4. When you left Canada, you should have filed Forms T1161. 1243 and 1244. Failure to file form T1161 results in a fine of $25.00 a day (each) to a maximum of $2,500 each. Real Estate Property in Canada can be exempted from paying the tax 'now' but real property outside of Canada or Stock or mutual fund holdings or a private company incur the tax right now. If you owned the Florida property for a day before you left, it would have to be reported and any capital gains from the day you bought has to be paid now or security for the tax posted with the CRA. This is calculated using forms 1243 and 1244. I will make the statement that 98 out of a 100 Caandian accountants have never seen or filled out a 1243 or 1244 or T1161. The situation is so 'unknown' that I think that the CRA's leveliing penalties is unconsionable. . If you were penalized, you should write to the FAIRNESS COMMTTEE AND to the minister of National Revenue, Stephen Harper and your local MP before you left.
5. It may be that you are better off being a taxable resident of Canada as you have described your situation. It is possible for your husband to be a tax resident of the US and a factual resident of Canada while you are a tax resident of Canada. At any time, I will have a dozen couples in that situation for one reason or other.
6. Although the CRA ties to make people tax residents quite regularly, it is my experie3nce that theye CRA usually loses when we are dealing with the US IRS because the IRS wants you as a tax resident as well. Article IV of the treaty is what determines the outcome. Keeping an empty residence in Canada rally does complicate the decision, particularly if you actually stay in it.
As you have discovered with your property tax inequality, this stuff is technical and it is difficult for anyone to keep up with it all. I used to have 14 offices in Flordia and participated in teh sale of over 3,000 pieces of real estate in Cape Coral but would not begin today to think that I knew all the ins and outs of municipal tax legislation in Florida,
Last, but not least, Capt Hauser (of Air Canada) lost his non-resident status in July 2006 in the Supreme Court of Canada. You should be looking up his case to get ideas about what the latest rules are according to the Supreme court of Canada..
In the meantime, you should go to www.centa.com and read the US/Canada Income Tax section in the second box down on the right hand side. The first half is dedicated or deals mostly with US citizens living in Canada but at just about the very center, you will find several cases dealing with Canadians out of the Country AND the details of Judge Teskey's decision in the Dennis Lee Case. you will also find Article IV of the Treaty a couple of pages in.
What the heck, I will repeat most of it here in this older Q & A.
