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non-resident seeking to invest
Dear David,
First, let me say that I thoroughly enjoy the CENTAPEDE mailing list - it is a million times better than the PwC list / resources that I have followed / reviewed over the past couple of years.
And, I also would like to take the opportunity to offer my support for your trials and tribulations with that whole E-Bay debacle with the printer. What a pathetic counterparty.
My query is Canadian-specific:
I have both Canadian and British citizenship. I left Canada at the very end of 1996 and eversince, have lived, worked full-time and paid tax in Korea. Other than a Bank of Montreal Mastercard - a supplemental card on my parents' main Mastercard account - I have no ties to Canada. Notwithstanding my lack of ties, I have never formally filed for Canadian non-resident status - and my last tax filing in Canada was for Y1996.
I would like to consider options for investing into Canadian real estate and acheiving financing for such investments.
Keeping the situation above the same:
(a) Could I expect to gain financing from a Canadian institution for Canadian property investment even though I am not a resident ?
(b) If I were to get financing, and then purchase and lease a property in Canada - as an investment property - could I expect to be taxed as a resident of Canada ?
(c) Is there any rule of thumb as to when I could make an investment property my primary residence without the decision to do so being made part of a retroactive determination of residency status ?
(d) What's your take on officially filing for non-residency status ? Worth making the fuss and attracting the attention of RevCan ?
Not sure if the above is going to give you the chance to answer with something that is worthy of sharing with others on the CENTA list - and I kind of doubt it will. However, rest assured, that the next time I have the chance - right now, that being the third/fourth week of September - I'd like to stop by your offices on my way to Toronto to discuss some planning.
Thanks and best regards,
TXXXX
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david ingram replies
Thank you for your kind comments. It has been quite a "last couple of weeks" and I needed those comments.
And, I am pleased to tell you that you are safe.
Korea is a treaty country.
Article IV of the Canada/Korea Income Tax treaty states:
Article 4
Fiscal Domicile
1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of head or main office, place of management or any criterion of a similar nature.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then this case shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (hereinafter referred to as his "centre of vital interests");
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State of which it is a national.
What this means is that if you live in a rented apartment in Korea you are a resident of Korea for worlwide tax purposes as long as you do not have an "empty" residence available in Canada. If you do have a residence available in both countries, they will look at personal and economic interests. If you have $10,000 in the bank in Korea and $900,000 invested in Canada, you might be in trouble although it would be unusual.
In general in answer to your questions:
a) Financing should be no problem. The equity and condition of the property should be the defining factors. If you were to put down 33%, there will be no problem. The smaller the down payment, the harder it will be to finance.
b) Provided it is leased out for a year or more to a non-arms length person, there should be no problem. i.e. a lease of a year makes the property unavailable to you. A month to month tenancy means you could move in very quickly and is defined as available.
c) When you make the rental property a personal residence there is a deemed sale. You will owe capital gains tax because of the deemed sale unless you elect to defer the tax until the actual sale under Section 45(3) of the tax act. Even if you made it a residence available to you, it does not make you a resident of Canada. For instance thousands of
Americans have a cabin at Whistler or a waterfront (or non-waterfront) cabin on a gulf island or a place at Collingwood or Wasaga Beach. They are clearly personal residences (even if seasonal) and the owners are not considered residents of Canada.
d) I see no reason to write for a formal ruling from the CCRA (Revenue Canada). It just puts you on a list. Also., it does not guarantee anything. Go to www.centa.com and click on US/Canada Tax. This section applies to almost any treaty country and certainly applies to you in Korea. However, you will find the David McLean case where he obtained a ruling that he was a non-resident and was still taxed when he returned. Also read the Dennis Lee and Judge Teskey case. The Dennis Lee case has the best list of what to do and what NOT to do of any case I have read.
I look forward to seeing you in September. That is how I make my living.
And yes, I will take your name out of this and make it a mail out.
David Ingram of the CEN-TA Group
US / Canada / Mexico tax and working Visa Specialists
US / CANADA Real Estate Taxation Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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