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Hi there Taxman -
I'm a Canadian Citizen who's been living in South Korea for about six
months. I'm moving to Kuwait shortly to take a position there. I have =
no
primary ties to Canada at all but I do want to go back to live there
someday. Will I get nailed with Canadian taxes when I go home? Is =
there
anything I can do to escape the Canadian taxman?
With sincere thanks,
MXXXXXXXXXXX
_________________________________________________________________
david ingram replies:
You should have paid tax to South Korea. Kuwait does not have an income =
tax. If you have truly given up everything Canadian, you should be free =
of Canadian Income tax as well.
On the other hand, if you still have your Canadian Driver's licence =
tucked away (because it is more comfortable) and you have some furniture =
in storage at your mother's and your old car is in the back yard at your =
brother's waiting for your return, you are leaving yourself wide open =
for Canadian Taxation as the following cases show.
I recently had a lady client go bankrupt becasue of a retroactive CCRA =
tax bill of $138,000 which they imposed because she had left her car =
licenced at her mother's.
Your statement about primary ties indicates to me that you likely have =
enough other ties that the CRA could walk all over you. Read the =
following which is taken from my best selling 1991 Income Tax Guide and =
which you can find and read for free at www.centa.com/ This particular =
part is from [US/Canada Taxation] which you can also find at =
www.centa.com.
So what are the rules?=20
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.=20
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.=20
** 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.=20
OUT OF CANADA AND RESIDENT - IN CANADA AND NON-RESIDENT=20
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.=20
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.=20
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.=20
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.=20
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.=20
Judge Teskey said:=20
"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":=20
a.. - past and present habits of life;=20
b.. - regularity and length of visits in the jurisdiction =
asserting residence;=20
c.. - ties within the jurisdiction;=20
d.. - ties elsewhere;=20
e.. - permanence or otherwise of purposes of stay;=20
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);=20
g.. - residence of spouse, children and other dependent family =
members in a dwelling maintained by the individual in Canada;=20
h.. - memberships with Canadian churches, or synagogues, =
recreational and social clubs, unions and professional organizations =
(left out mosques);=20
i.. - registration and maintenance of automobiles, boats and =
airplanes in Canada;=20
j.. - holding credit cards issued by Canadian financial =
institutions and other commercial entities including stores, car rental =
agencies, etc.;=20
k.. - local newspaper subscriptions sent to a Canadian address;=20
l.. - rental of Canadian safety deposit box or post office box;=20
m.. - subscriptions for life or general insurance including =
health insurance through a Canadian insurance company;=20
n.. - mailing address in Canada;=20
o.. - telephone listing in Canada;=20
p.. - stationery including business cards showing a Canadian =
address;=20
q.. - magazine and other periodical subscriptions sent to a =
Canadian address;=20
r.. - Canadian bank accounts other than a non-resident account;=20
s.. - active securities accounts with Canadian brokers;=20
t.. - Canadian drivers licence;=20
u.. - membership in a Canadian pension plan;=20
v.. - holding directorships of Canadian corporations;=20
w.. - membership in Canadian partnerships;=20
x.. - frequent visits to Canada for social or business purposes; =
y.. - burial plot in Canada;=20
z.. - legal documentation indicating Canadian residence;=20
aa.. - filing a Canadian income tax return as a Canadian =
resident;=20
ab.. - ownership of a Canadian vacation property;=20
ac.. - active involvement with business activities in Canada;=20
ad.. - employment in Canada;=20
ae.. - maintenance or storage in Canada of personal belongings =
including clothing, furniture, family pets, etc.;=20
af.. - obtaining landed immigrant status or appropriate work =
permits in Canada;=20
ag.. - severing substantially all ties with former country of =
residence.=20
"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."=20
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.=20
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." =20
The case above is not unusual in any way. It is a fairly typical =
situation in my office.=20
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.=20
Even a car you do not own can make you a resident as the next =
sailor found out.=20
In 1988, FrederickReed 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.=20
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.=20
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.=20
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.=20
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.=20
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.=20
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.=20
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.=20
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.=20
DEBT SECURITIES - BANK ACCOUNTS=20
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 15 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.=20
RENTAL PROPERTIES - CANADA - OWNED BY U.S. RESIDENT=20
More important perhaps is the problem with rental properties in =
Canada. When owned by a non-resident, they are subject to a 25% =
withholding (or 15% if living in Bangladesh) tax. If the renter does not =
pay this tax, the government can come along two years later and demand =
the tax.=20
Imagine the consternation of a tenant of a house in the British =
Properties in West Vancouver, or Rosedale in Toronto. Assume the tenant =
has been paying $2,000 a month for a $500,000 house owned by a Hong Kong =
resident. After three years of paying $24,000 a year to the =
`non-resident', they finally buy a house and move. Two months later, =
there is a knock on the door and a National Revenue representative is =
standing there demanding 25% of $72,000 for NON-RESIDENT withholding tax =
(this is a true story by the way, only the owner was in London).=20
There is a way around this problem. The tenant can ask to see, or =
rather DEMAND to see a copy of the landlord's filed and accepted NR6 =
form. (See forms in back of book). This form allows the tenant or agent =
of the landlord to deduct a lesser amount (or nil if a loss) than 25% of =
the gross rent. It allows for expenses to be taken off and the tax can =
then be withheld at 25% of the net, rather than the gross. The property =
management division of david ingram & Associates Realty Inc. files about =
300 of these NR6 forms a year. (This is only necessary if you are paying =
directly to a landlord whom you KNOW to be a non-resident of Canada. If =
you are paying to an agent or Canadian Resident, you are okay.)=20
Please note, the NR6 MUST BE FILED BEFORE the first rent cheque is =
received or 25% of the gross rent must be remitted. For years, we were =
in the habit of filing `this years' NR6 late with last years tax return. =
In 1989, National Revenue stopped accepting this sloppy practice and =
demanded them on time.=20
IF YOU SIGN THIS FORM AS AN AGENT, AND THE OWNER DOES NOT FILE HIS =
OR HER RETURN BY JUNE 30TH OF THE FOLLOWING YEAR, YOU, THE AGENT, ARE =
RESPONSIBLE FOR THE 30% OF THE GROSS RENT WITH NO REFUND PROVISIONS FOR =
ANYONE.=20
RENTAL PROPERTIES - UNITED STATES - OWNED BY A CANADIAN=20
If paying 25% of the GROSS rent to Canada sounds bad, cheer up. =
The United States taxes the Canadian 30% in the same situation. To avoid =
this, the Canadian needs to notify the U.S. Government that he wishes to =
be taxed as a business rental house on the "net income" received. But if =
you do not notify the IRS in advance, the IRS CAN tax you at the 30% of =
gross rate.=20
SALE OF REAL ESTATE - IN CANADA=20
The situation is different with the sale of REAL ESTATE. A =
non-resident with property in Canada who sells the property is subject =
to a withholding tax of 33 1/3% on the GROSS sale price unless they fill =
out a form 2062A (sample at back of book) and submit it to Revenue =
Canada for approval. You cannot use the form in the book, it is the =
wrong size. It must be obtained from Revenue Canada and filled out in =
quintuplet (5 copies). It does not have to be filed before the sale =
unless you need the money immediately to close a back to back deal - the =
lawyer can keep money in his trust account until the form is approved.=20
CAUTION - This is serious, a Realtor and lawyer who were not aware =
of this fact are at possible risk of law suit from a purchaser. The =
purchaser was called upon to pay 25% of the purchase price of the =
property to Revenue Canada for failure to withhold. The rate was 25% up =
to 1987, 30% for 1988 and 1989, and is now 33 1/3%). There is a proposal =
to make it 50% unless the form 2062 is filed. The situation is serious =
enough that one should not accept a person's declaration that they are a =
resident as sufficient reason to "not withhold tax". In one case, the =
purchaser and the real estate agent drove the vendor to the airport to =
fly back to Hong Kong. The vendor is not a resident of Canada. Is it any =
wonder that National Revenue wants to collect the tax from the purchaser =
and the purchaser wants to sue the real estate agent and lawyer. "THE =
ONLY SAFETY IN THIS SITUATION IS FOR THE PURCHASER TO REQUEST A T2062 =
EXEMPTION FROM REVENUE CANADA."=20
What form T2062 does is allows you to calculate the actual gain =
WHICH WILL BE EARNED AND TAXABLE. The purchaser may then only DEDUCT/pay =
a withholding tax on the taxable gain, not the gross sale price. Revenue =
Canada is wonderful when it comes to quick approval of this form. I =
would love to give out names of people who have gone overboard to =
accommodate clients but they have said, "NO, NO, NO! " (Please note. =
Even though Real Estate Commissions and other costs of sale are =
deductible when calculating the actual taxable income for tax purposes =
on a return, they may NOT be deducted for the purposes of the T2062).=20
If you are having trouble with a sale or purchase with a =
non-resident, feel free to call upon the services of our office. David =
Ingram at (604) 649-4755 or FAX (604) 649-4759 is available to assist =
your lawyer or real estate agent. In addition, if you need the services =
of a lawyer for this special service, David Stoller, LLB shares office =
premises with us and is available at the same numbers.=20
SALE OF UNITED STATES REAL ESTATE=20
The U.S. government does the same thing when a Canadian is selling =
property in the states. They have a 10% withholding tax on the gross as =
well and there is usually a state government withholding of another 3 =
1/2%. However, all is not lost. The U.S. government has a form as well. =
It is form 8288-B and is reproduced at the back of this book as well, =
next to the 2062. You can use this form or a photocopy to request a =
reduction or total cancellation of the 10% withholding. For instance, if =
you inherited a condo in Wheeling, West Virginia and sold it right away, =
the estate tax would be paid already and you would have inherited it at =
its present value. There would be no capital gains expected and =
therefore, you could get the withholding cancelled.=20
In addition, if the property is being transferred for $300,000 or =
less and is being used as a personal residence by the purchaser, and the =
purchaser will sign a letter saying that they intend to live it for six =
months or more a year for the next two years as a principal residence, =
they or the escrow agent do not have liability for withholding tax. =
However, it is still my opinion that if on either side of this problem, =
one should read pages 17 and 18 of the 1990 edition of Publication 17 =
for more information and following that format, write to the Internal =
Revenue Service with an 8288 and ask for the exemption formally. =
Remember also that individual states like California also have a =
withholding of (California 3 1/3%) non-resident tax and it is necessary =
to write to them as well.=20
(After all, why should the average person get stuck with =
withholding tax in what is an extremely sophisticated tax matter.)=20
REMEMBER THOUGH, Real estate capital gain profits from sales in =
the US by Non-residents are subject to ALTERNATIVE MINIMUM TAX. The rate =
started at 17% in 1987 and is 26% today in 1999.=20
That means that if you had bought a property for $10,000 and sold =
it now for $110,000 and had $11,000 tax withheld, you will; actually owe =
the IRS another $15,000 when you file your tax return. When we prepare =
these returns, about one/half get refunds, half pay more. See my June, =
July and August newsletter for more information. (Page ???? in this =
book). =20
The manual says the preparation of the 8288A and B takes a total =
of 4 hours for the first one you do (i.e. record keeping is 1 hr, 33 =
min; learning the law of the form is l hr, 43 min; preparing the form is =
37 min; and copying, mailing, etc. is another 20 min). It is mailed to:=20
The Director=20
Philadelphia Service Center=20
P. O. Box 21086 =20
Philadelphia, PA 19114=20
Again, if you are having trouble or cannot find anyone locally to =
help, call our office at (604) 649-4755. =20
WATCH OUT AMERICAN CITIZENS=20
LIVING IN CANADA=20
All American citizens must file American tax returns for as long =
as they remain citizens of the U.S.A. This means that even if you are a =
landed immigrant in Canada and intend to take out citizenship, you must =
continue to file American returns until you do in fact take out Canadian =
citizenship. This may seem a needless task, but if you don't do this and =
you suddenly decide to take a trip out of the country, you may have =
problems obtaining a passport. The only place you can get a passport is =
from the American Embassy or Consulate and they want to know if you have =
filled out your American returns. If not, they could refuse to issue =
your passport. I have seen several exotic trips ruined because of this.=20
Because of exemptions and foreign tax credits there is usually no =
(or very little) additional tax to pay, but you must still file an =
American return. Since the first edition of this book, it has become =
obvious that if there is a lot of interest, royalties, dividends, rents, =
or business income, the Alternative Minimum Tax will kick in and only =
allow 90% of the foreign tax credit when the incomes exceed $45,000 for =
a joint return, $33,750 for a single person, and $22,250 for a married =
person filing separately. If the income is only earnings and less than =
$70,000 and the rest of the income is under the stated amounts above =
there should be no U.S. tax.=20
EXAMPLE=20
Let's assume you are a retired U.S. citizen living in Canada with =
an income of $10,000 U.S. Social security and $10,000 in interest from =
the United States. You have Canadian interest of $10,000 and a Canadian =
Pension of $15,000 from University of Toronto and $7,000 from Canada =
Pension Plan and Old Age Security. Oh yes, you get $3,000 of interest =
from England for a total of $55,000 of which $50,000 is taxable income =
(this is a true story by the way).=20
Where do you pay your tax? (all money in Canadian Funds)=20
Great Britain will take $450.00 at source (15%).=20
You will prepare your U.S. return reporting your U.S. Social =
Security ($5,000 of it will likely be taxable because of your total =
income [85% is taxable over about $25,000]), your U.S. interest, your =
Canadian interest, the British estate, and your Canadian pensions. =
Calculate your tax. Then `prorate' the tax among the income from the =
different countries. i.e. if your total tax was $10,000, then the Great =
Britain portion would be $3,000 / 50,000 x $10,000 =3D $600. The =
Canadian Portion would be $32,000 / 50,000 x $10,000 =3D $6,400 and the =
American portion would be 15,000 / 50,000 x $10,000 =3D $3,000. (This is =
not perfect - the real calculation is done on form 1116 and has prorated =
exemptions, etc. calculated in but you get the idea I hope. You will =
prepare your Canadian return reporting exactly the same amounts except =
that you will report the whole $10,000 Social Security and claiming =
$1,500 as a 15% deduction on line 256. If your tax was the same $10,000 =
in Canada, then the percentages would be the same (for the example =
only).=20
Now you do not want to pay $10,000 to Canada plus $10,000 to the =
States plus the $450 to Great Britain. That would be double and even =
triple taxation on the Great Britain money.=20
What you do is file the U.S. return reporting all the money and =
calculating the tax owing of $10,000. You would then fill out an 1116 =
Foreign Tax Credit form and claim credit for the $450 paid to Great =
Britain. This would give you a credit of $450 against your $10,000 tax =
and you would now owe $9,550 to the U.S. You would then do another Form =
1116 (maybe one each for pensions and interest) for the Canadian Income. =
In this example, that would result in a credit for $6,400 for the tax =
paid to Canada and you would now owe ($9,550 - $6,400) $3,150 to the =
U.S. government.=20
In Canada, you would do the same calculations and get about the =
same result. The one place that you would pay double taxation (or =
triple) would be that you are paying an extra $150 to BOTH the U.S. and =
Canada on the British Estate Income. If we find these situations we =
recommend efforts be made to transfer the corpus of the estate to one of =
the taxing countries. On the U.S. return, we cannot claim credit for the =
extra $150 to Canada because the Estate did not come from Canada, and on =
the Canadian Return, we cannot claim credit for the $150 extra paid to =
the U.S. because the money did not come from the States.=20
If you do not want to attempt these rather involved calculations, =
mail the paperwork to me at:
THE CEN-TA Group
108 "the Gallery"=20
100 Park Royal South,=20
West Vancouver, BC, V7T 1A2 =20
Today, for instance, tax work arrived from Athens, Greece, =
Auckland, New Zealand, Hong Kong, Honolulu, and Brussels.=20
AMERICAN HUSBAND - CANADIAN WIFE=20
This was a 1990 analysis of the situation of a Very High Profile =
couple who desired to live and work in the United States and Canada. =
Unfortunately, it does not matter any more. They were divorced, he =
remarried, and he has since died of cancer.=20
THE CEN-TA Group
108 "the Gallery"=20
100 Park Royal South,=20
West Vancouver, BC, V7T 1A2,=20
604 913-9133 - FAX 604 913-9123=20
[email protected]=20
December 11, 1990=20
My Understanding:=20
I understand that your husband is a U.S. Citizen with landed =
immigrant status in Canada and that you are a Canadian Citizen with a =
U.S. Green Card.=20
I also understand that the desire of both is to continue having =
the benefit of both worlds, i.e. the ability to move back and forth =
across the International Border and work in either place with no fuss.=20
While the following is not written in stone, the general tone is =
what would usually be followed:=20
Re: Wife=20
Although leaving Canada and obtaining a U.S. "Green Card" usually =
stops the taxation of World Income by Canada, it will not stop Canadian =
Taxation, if close ties are maintained with Canada either through =
family, marriage, investments in Canada, or the providing of services in =
Canada. Page 183 of my 1990 Income Tax Book points out how the countries =
arrange taxation between them.=20
The convention implies that only one country will tax. Nothing is =
further from reality. What usually happens in the case of a person who =
is maintaining close ties with both countries (legally or not), is that =
BOTH countries will tax and honor foreign taxes paid to the other =
country on income which was sourced in that other country. The U.S. =
allows the credits on a form 1116, Canada allows the credits on a =
Schedule 1.=20
The previous paragraph was written with the understanding that the =
general application of taxation by Canada is that if a person leaves the =
country, they are no longer taxable to Canada on their world income. =
This premise is different from that of the U.S. and of course your =
husband is caught in that web and the old Charlie Chaplin rule (see end =
of section)=20
Re: HUSBAND - U.S. CITIZEN=20
Your husband is a U.S. Citizen which means he is taxable on his =
world income anywhere he goes with some exemptions. If he establishes a =
bona fide residence in another country (i.e. Canada), he may exempt up =
to $70,000 of employment type income from U.S. Income Tax. This is a =
pro-rated figure, so that if he was physically in the U.S. for 180 days, =
only 185/365 x $70,000 would be exempt or an amount of $35,479.45.=20
Because he has landed immigrant status in Canada, the husband is =
also taxable on his world wide income by Canada. Because the Canadian =
Income Tax Rate is higher, if the source of funds is Canada, usually =
there is no tax to pay to the U.S. because the foreign tax credits on =
Form 1116 will usually take care of them. The exception is for Capital =
Gains. We only tax 75% of capital gains and the first $100,000 is tax =
free. Therefore, without proper planning, a U.S. citizen can find =
himself paying double taxation by claiming the exemption in Canada, =
paying tax to the states without a credit, and then when the exemption =
has run out in Canada, paying tax to Canada in other years.=20
Re: LANDED IMMIGRANT STATUS
(BOTH COUNTRIES)=20
This is a delicate matter. It is very easy for either party to =
lose their status in the other country by their actions.=20
For instance, one famous actor we all know lost his landed status =
in Canada when he was away for two years without notifying the =
Immigration Department and getting permission to be away as a returning =
resident.=20
Because of this fact, it is important that the parties understand =
that establishing a bona fide residence in Canada could cause the wife =
to lose her status in the U.S., and going for citizenship for the wife =
in the U.S. could cause the husband to lose his status in Canada.=20
i.e. It is a conundrum. How does the husband say to Canada, Hi, =
here I am, full time to become a citizen, while the wife is saying the =
same thing in the U.S. I suggest that for U.S. purposes, the husband not =
worry about Bona Fide Residence in Canada.=20
It does not need to be a problem though. It seems to me that you =
have the best of both worlds as it is. By moving back and forth on a =
fairly regular basis and by properly preparing tax returns in both =
countries and claiming foreign tax credits, you can have your cake and =
eat it too.=20
Yours truly=20
the CEN-TA Group=20
david ingram=20
British Columbia Income Tax, Real Estate & Immigration =20
P.S. The Charlie Chaplin Rule is: The United States will continue =
to tax income, estates and gifts associated with U.S. citizens for ten =
years after they give up their citizenship unless they can prove that =
they did not give up their citizenship for tax reasons (what other =
reason could there be). =20
Ask an Expert
a.. Taxation=20
b.. Immigration=20
c.. Real Estate=20
d.. Investment=20
e.. Pensions=20
f.. Tax havens=20
g.. Gambling=20
Anything to do with activities in or about a foreign country
=20
Learn More in The
CEN-TAPEDE
Free 6 month
Subscription to the
Cen-tapede E-mail Newsletter
Sign up Now and save,=20
not only on the normal $125.00/year subscription
but by following the=20
many hints and tips
Real Estate, Tax,=20
Immigration, Visas,=20
Working and Investing
in the US, Canada, Mexico and other countries
=20
=20
David Ingram's US/Canada Services
US/Canada/Mexico Tax Immigration & 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=20
[email protected]
www.centa.com www.david-ingram.com
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 & =
the author and any and all non-contractual duties are expressly denied. =
All readers should obtain formal advice from a competent financial, or =
real estate planner or advisor & appropriately qualified legal =
practitioner, tax or immigration specialist in connection with personal =
or business affairs such as at www.centa.com. If you forward this =
message, this disclaimer must be included."
This from ask an income tax immigration planning and bankruptcy expert =
consultant guru or preparer from www.centa.com or www.jurock.com or =
www.featureweb.com. Canadian David Ingram deals daily with tax returns =
dealing with expatriate:
multi jurisdictional cross and trans border expatriate gambling refunds =
for the United States, Canada, Mexico, Great Britain, the United =
Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, =
Indonesia, Egypt, Antarctica, Japan, China, New Zealand, France, =
Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, =
Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, =
Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, =
Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, =
US, UK, GB, American and Canadian and Mexican and any of the 43 states =
with state tax returns, etc.
income tax wizard wizzard guru advisor advisors experts specialist =
specialists consultants taxmen taxman tax woman planner planning =
preparer of Alaska, Alabama, Arkansas, Arizona,=20
California, Colorado, Connecticut, =20
Delaware, District of Columbia, Florida,=20
Garland, Georgia, Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky,=20
Louisiana, Maine, Maryland, =20
Massachusetts, Michigan, Minnesota, =20
Mississippi, Missouri, Montana, Nebraska, =20
Nevada, New Hampshire, New Jersey,=20
New Mexico,New York, North Carolina, =20
North Dakota, Ohio, Oklahoma, Oregon.=20
Paris, Rome, Sydney, Australia Hilton
Pennsylvania, Rhode Island, Rockwall,=20
South Carolina, South Dakota, Tennessee, =20
Texas, Utah, Vermont, Virginia,=20
West Virginia, Wisconsin, Wyoming,=20
British Columbia, Alberta, Saskatchewan,=20
Manitoba, Ontario, Quebec City,=20
New Brunswick, Prince Edward Island,=20
Nova Scotia, Newfoundland, Yukon and=20
Northwest and Nunavit Territories, =20
Mount Vernon, Eumenclaw, Coos Bay=20
and Dallas Houston Rockwall Garland=20
Texas Taxman and Tax Guru and wizzard=20
wizard - Answers to this and other similar questions can be obtained =
free on Air every Sunday morning.
Starting this Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of =
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=20
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