Hi there,I am currently a Canadian Citizen and working in B.C. I have been working in B.C for the month of January and first week of February and then left my job to pursue a job in the UAE. I will be moving there in Mid March or Early April. My wife will be working in Canada until beginning of May and moving down permanently in mid may. Will be getting our residency visas.We have decided to sell our rental, give our warm clothes to salvation army, take our cars off insurance/give back the plates (if our family needs a car they can then buy it when theirs breaks down), stopping my membership to sports teams etc, joining a hockey team in teh UAE, getting new credit cards, drivers license from dubai, and changing my accounts in Canada to non-residency.My question is since we have worked in Canada in 2008 (me as IC and no tax was taken and wife was taxed in hospital), sold our rental, do we declare income as a Canadian Resident or non-resident for 2008?
-----------------------------------------david ingram replies:
First of all, keep your rental if you ever intend to come back to BC. I have had a dozen peole I know sell their places in BC in 2001, 2 or 3and move to Dubai, Qatar or Kuwait. When they have come back 5 or sixyears later, they find that the house they sold has gone up in valuemore than the gross income they made in their tax free haven and theirsavings do not come close to getting them back into the market with anequal housing unit.
You can keep a $5,000,000 house in Canada and as long as it is rentedto a stranger for a lease which is a year or more, it does not affectyour residencey.
You will have become a non-resident at some time. For you, it may beApril 1 and for your wife, it may be May15th.
Leaving your cars here in some sort of storage (even for free in yourbrother-in-laws backyard) is more dangerous for residency purposes thanleaving a rented $5,000,000 house.
You each need to file form NR6 for the 2008 rental BEFORE you leave.
Then a year from now, you each need to file a 2008 departing Canada taxreturn with forms 1161 and maybe 1243 and 1244. Failure to file T1161usually results in a fine of $2,500 ($25.00 a day for 100 days). Although I concede that you could be just a day late, the minimumpenalty is $100 (4 days worth) but I have never seen one less than$2,500 because the forms are always three or four months or more latewhen late. These departing returns for 2008 are due by April 30, 2009.
Then, assuming that you have followed my advice and kept the rental,you will need to file forms T1159 and T776 to report the non-resisdentrental income for the rental. These 2008 Sec 216(4) Canadiannon-resident rental returns are due by June 30, 2009.
HiI 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 be
taxed 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 upclubs, bank accounts, memberships, driving licences, provincial healthcare 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 itout, but it must be rented on lease terms of a year or more. And youMUST have an agent sign an NR6 for you (see example). This NR6 has theCanadian Resident AGENT ** guarantee the Canadian Government that ifYOU do not pay your tax to Canada, the AGENT WILL. Even afterfulfilling the foregoing, the Canadian government can still tax you or"try" to tax you on your income out of the country. If you are beingpaid by a Canadian Company, they can quite often succeed.
Even though you can collect family allowanceout of the country, don't! One client's wife found out that she couldget family allowance out of the country if she said they were comingback to Canada. She got some $3,000 of family allowance and cost thefamily some $80,000 in income tax when they came back to Canada fromBrazil. I will never forget the husband's expression when he found outwhy he had been reassessed and I will never forget his wife'sexplanation. 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 afriend, 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 peryear is "in addition" to any other fees but "well worth it" of course.It stops your mother, father, brother, next door neighbour orex-best-friend from being plagued by paperwork they do not understand.
OUT OF CANADA AND RESIDENT - IN CANADAAND 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 thecountry for seven years, or never have even lived in Canada, but wantedto, and be taxed as a Canadian resident as the following three casesshow. In case you missed it, the reason for the different rulings isthe "INTENT" of the parties involved. Wolf Bergeltintended to leave Canada. David MacLean was only workingout of the country. He still maintained a residence andcould not ever become a resident of Saudi Arabia anyway. Dennis Lee"wanted" to live in Canada.
In 1986, Wolf Bergelt won non-resident statusbefore Judge Collier of the Federal Court, even though he was only outof the country for four months and his family stayed behind to sell hishouse. He had given up his memberships, kept only one bank account andrented an apartment in California until his house in Canada was sold.Four months after his move, his company advised him that he was beingtransferred back to Canada. Judge Collier said his move was a permanent(although short) move and he was a non-resident for tax purposes forthose four months.
In 1985, David MacLean lost his claim fornon-residence status even though he was gone for seven years. He kept ahouse and investments in Canada and returned a couple of times a yearto visit parents. He had even been to the Tax Office and received aletter on January 29, 1980 stating that his Canadian Employer couldwaive tax deductions because he was a non-resident. However, he did notadvise his banks, etc. that he was a non-resident so that they wouldwithhold tax, he did not rent his house out on a long term lease and hedid 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. MacLeanhad stumbled on the non-resident status by chance rather than bydesign. In other words, to become a non-resident of Canada, you mustbecome a bone fide resident of another country. As arule, only a Muslim born in Saudi Arabia to Saudi Arabian parents canbecome a Saudi Arabian citizen. The best that DavidMacLean can hope for is that he has a Saudi Arabian temporary workpermit.
In other words, when a person leaves a place,they usually leave and establish a new identity where they are becausethe "new place" is where they live now. Trying to "look" like anon-resident is not the same as "BEING" a non-resident - think about it.
In 1989, Denis Lee won part but lost most of his claimfor non-resident status. He was a British Subject who worked onoffshore oil rigs. He maintained a room at his parents house in Englandand held a mortgage on his ex-wife's house in England. For the years1981, 82 and 83 he did not pay income tax anywhere. in 1981 he marrieda Canadian and she bought a house in Canada in June of 1981. OnSeptember 13, 1981, he guaranteed her mortgage at the bank and swore anaffidavit that he was "not" a non-resident of Canada. [As I have saidin the capital gains section of this book, bank documents will get youevery time.] During this time he had a Royal Bank account in Canada andthe Caribbean but no Canadian driver's licences or club memberships,etc.
Judge Teskey said:
"The question of residency is one of fact anddepends on the specific facts of each case. The following is a list ofsome of the indicia relevant in determining whether an individual isresident in Canada for Canadian income tax purposes. It should be notedthat no one of any group of two or three items will in themselvesestablish that the individual is resident in Canada. However, a numberof the following factors considered together could establish that theindividual is a resident of Canada for Canadian income tax purposes":
- past and present habits of life;
- regularity and length of visits in thejurisdiction asserting residence;
- ties within the jurisdiction;
- ties elsewhere;
- permanence or otherwise of purposes of stay;
- ownership of a dwelling in Canada or rentalof a dwelling on a long-term basis (for example, a lease of one ormore years);
example, a lease of one ormore years);
- residence of spouse, children and otherdependent family members in a dwelling maintained by theindividual in Canada;
maintained by theindividual in Canada;
- memberships with Canadian churches, orsynagogues, recreational and social clubs, unions and professionalorganizations (left out mosques);
unions and professionalorganizations (left out mosques);
- registration and maintenance ofautomobiles, boats and airplanes in Canada;
- holding credit cards issued by Canadianfinancial institutions and other commercial entities includingstores, car rental agencies, etc.;
entities includingstores, car rental agencies, etc.;
- local newspaper subscriptions sent to aCanadian address;
- rental of Canadian safety deposit box orpost office box;
- subscriptions for life or general insuranceincluding health insurance through a Canadian insurance company;
Canadian insurance company;
- mailing address in Canada;
- telephone listing in Canada;
- stationery including business cards showinga Canadian address;
- magazine and other periodical subscriptionssent to a Canadian address;
- Canadian bank accounts other than anon-resident account;
- active securities accounts with Canadianbrokers;
- Canadian drivers licence;
- membership in a Canadian pension plan;
- holding directorships of Canadiancorporations;
- membership in Canadian partnerships;
- frequent visits to Canada for social orbusiness purposes;
- burial plot in Canada;
- legal documentation indicating Canadianresidence;
- filing a Canadian income tax return as aCanadian resident;
- ownership of a Canadian vacation property;
- active involvement with business activitiesin Canada;
- employment in Canada;
- maintenance or storage in Canada ofpersonal belongings including clothing, furniture, family pets,etc.;
clothing, furniture, family pets,etc.;
- obtaining landed immigrant status orappropriate work permits in Canada;
- severing substantially all ties with formercountry of residence.
"The Appellant claims that he did not want tobe a resident of Canada during the years in question. Intention or freechoice is an essential element in domicile, but is entirelyabsent in residence."
Even though Dennis Lee was denied residencyby immigration until 1985 (his passport was stamped and limited thenumber of days he could stay in the country) and he did not purchase acar until 1984, or get a drivers licence until 1985, Judge Teskey ruledthat he was a non-resident until September 13, 1981 (the day heguaranteed the mortgage and signed the bank guarantee) and a residentthereafter.
My point is made. Residency for "TAX PURPOSES" hasnothing to do with legal presence in the country claiming the tax. Itis 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 peopletrying to "hold on to" after they leave and are trying to becomenon-residents. No single item will make you a resident, but there is apoint where the preponderance of "numbers" leap out and say, "He / Sheis a resident of Canada, no matter what he / she says."
The case above is not unusual in any way. Itis 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 Employerand on $125,000 he received for exercising a share stock option givento him when he had been a resident of Canada (the option, not thestock). Judge Rouleau of the Federal Court ruled that section 15(1) ofthe Great Britain / Canada Tax Convention did not protect the $125,000as it was not "salaries, wages, and other remuneration". It was,however a benefit received by virtue of employment within the meaningof section 7(1)(b) of the act.
Even a car you do not own can make you aresident as the next sailor found out.
In 1988, FrederickReed was claimed by theCanadian Government as one of their own. He lived on board ship andshared an apartment with a friend in Bermuda but only occasionally. Healso stayed with his parents in Canada when visiting his employer inHalifax. Judge Bonner of the Tax court ruled that he could not claimhis place of employ or the ship as his residence and just because hedid not have a fixed abode, did not make him a non-resident. He wasalso the beneficial owner of a car in Canada which even though of minorconsequence, served to add to his Canadian Residency. He had in factborrowed money from a credit union to buy the car, even though it wasregistered in his father's name. He had maintained his CanadianDriver's licence as well.
An interesting case in June, 1989 involvedDeborah and James Provias who left Canada in October of 1984. They hadsold a multiple unit building to James' father on September 21, 1984but the statement of adjustments did not take place until December 1,1984. They tried to write off rental losses and a terminal loss againstother income as `departing Canadians'. Judge Christie of the Tax Courtruled that they had left before the sale and were not entitled to theterminal loss or another capital loss as these could only be appliedagainst income earned in Canada from October 13, 1984 (the day theyleft) to November 30, 1984 (the day before the sale) and there was noincome, only a rental loss.
But June, 1989 was a good month for HenryHewitt. He had been a non-resident living in Libya for four years andreceived some back pay after returning to Canada. DNR tried to tax himon the money but Judge Mogan of the Tax Court came to the rescue. Heruled that although Canadians were usually taxable on money whenreceived, that assumed that the money itself was taxable in Canada,which was not true in this case.
In 1989, James Ferguson lost his claim fornon-residency status but from the information, it didn't stand a chanceanyway. He had been in Saudi Arabia on a series of one year contractsfor four years. His wife remained employed in Canada, and he kept hishouse, car, driver's licence, union membership, and master plumber'slicence. Judge Sarchuk ruled that he had always intended to return toCanada and was a resident.
A similar situation involved John and JohnnieM. Eubanks in the United States. He was working on an offshore oil rigin Nigeria with a Nigerian work permit and attempted to claimnon-resident status for the purposes of exempting the foreign earnedincome exclusion. His wife was in the United States at all times andbecause 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 withhis family. He did not spend any 330 day period (out of a year) inNigeria and only had a residency permit for the purposes of working inNigeria. Judge Scott ruled he was a resident of the U.S. and taxed himsome $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 GuidancePamphlets. These documents sometimes get people in trouble because theindividual reads the good part and doesn't pay any attention to theexceptions. The following case ran contrary to a Guidance Pamphletissued by the IRS.
On and Off-shore Oil rigs were involved withWilliam and Margaret Mount and Jesse and Mary Wells. William and Jesseworked in the United Arab Emirates. However, they kept their homes andfamilies in Louisiana and kept their driver's licences in Louisiana andvoted in Louisiana. No evidence was shown that they had tried to settlein The United Arab Emirates. Judge Jacobs turned down claimedexclusions of approximately $75,000 each.
There isn't any question about what oil rigpeople 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 storyfollows.
In 1989, Clarence Ritchie found out that bonafide residence means just what it says. You cannot be a non-resident ofthe U.S. for tax purposes if you are not a bona fide resident ofanother country. He was working on the Mobil Oil Pipeline in SaudiArabia 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 UnitedStates, he had not established one in Saudi Arabia and therefore wasnot entitled to the foreign earned income exclusion which requires youto be away for 330 days out of 365. He had worked a 42 days on, 21 daysoff schedule and usually returned to the U.S. for his days off althoughhe did spend time in Tunisia, England, Italy and Greece.
On a final note, as explained on page 143 ofthe "PINK" 17th edition of my ULTIMATE TAX BOOK, it is possible to havethree countries after you for tax. If you are thinking of taking a jobbecause a recruiter told you the money is tax free, think twice andcheck three times with competent individuals about what the rules"really are". No government likes giving up the right to tax itscitizens.
DEBT SECURITIES - BANK ACCOUNTS
Non-residents of Canada with investments inCanada are subject to a 25% non-resident withholding tax on any moneypaid 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 ofMontreal must withhold 25 cents out of every dollar of interest paid tothe account. Most tax treaty countries such as Great Britain, Germany,the United States, and Australia have a reciprocal agreement withCanada that limits the withholding to 15%.