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My question is: Canadian-specific
QUESTION: Hello,
I am a non-resident, Canadian citizen, working in Asia. I am interested =
in buying property in BC which I can use during the summer months =
(maximum 2 months per year).
My question is:
Can I purchase a seasonal property (house or cabin on a lake in the =
Okanagan perhaps) without the need to rent it out during the year? I am =
worried that if I purchase a property in Canada, and do not rent it out, =
Revenue Canada will consider this to be a major residential tie to =
Canada, which could jeopardize my non-resident status.
Thank you,
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david ingram replies:
For some reason or other your return email address did not survive so I =
can not write and find out what country you are actually in.
The answer is pretty simple. =20
If you are in a tax treaty country like Japan, Indonesia, the Untied =
States, spain, etc, Kuwait, etc, you do NOT have to rent out the house. =
You would be tax free under Article IV of the treaty with whatever =
country you are working in.
If you are in a treatyless county such as Dubai, Hong Kong, Saudi =
Arabia, the Grand Caymans or Bahamas, you need to abolish all ties with =
Canada as the following cases show.
I have reproduced another old question here.
QUESTION:
Greetings Mr. Ingram;
I recently was referred to you by another Canadian, who spoke highly of =
you and recommended that I contact you.
I would very much appreciate your opinion on our "Non Residency status".
Living overseas, we often hear rumors that Revenue Canada is becoming =
more stringent regarding "Non Residency status".
Our intent is to be non residents of Canada however for a variety of =
reasons such as security and convenience we do keep some Canadian ties.
We have been living in Saudi Arabia since 1997, we plan to live here for =
several more years and then retire in a warm country. We have family in =
Canada, but other than for an occasional visit our intent is to not =
return to Canada.
We both work here in Saudi Arabia, and being that we are not Muslim, =
there is NO possibility for us to become permanent residents, or =
citizens of Saudi Arabia. The contract that we have with our employers =
is open ended and essentially we are permanently employed here. We rent =
a villa, as non Saudi's are not allowed to own real estate here. We =
have Saudi Health insurance, we own a Saudi vehicle and buy Saudi =
vehicle Insurance and I have a Saudi Drivers license. We both have =
Saudi Bank accounts and I have a Saudi Credit card. We have a Saudi =
Post office box and have all of our mail sent here.
Our Canadian ties are
We are Canadian citizens and only have Canadian Passports
We both have Canadian Bank accounts (non Resident declared) and both =
have Canadian Credit Cards.
I have a Bank safety deposit box.
We both maintain Canadian Drivers Licenses.
We both have Air Canada Frequent Flyer Aeroplan memberships.
We had household effect in storage, however in 2000 we cleared out the =
majority of our household items and now only have personal effects (a =
few pictures, some sporting equipment etc) left in storage in a =
container at a storage company. I pay for the storage monthly on my =
Canadian Credit Card.
We do visit our family in Canada once or twice a year for 1-2 weeks per =
visit.
I married my wife in 1997, she is divorced and owns a house with her =
ex-husband. He is a Canadian and lives in the house and does not pay =
rent or any other compensation to her. If the house were to sell she =
would get 50%.
I have life insurance with a Canadian insurance company.
I also have a locked in Canadian pension fund, I retired from a Canadian =
company and the money that was in their Retirement Pension plan was =
divested and transferred to this Fund. It is locked in and I cannot =
touch it until I am 65.
Would very much appreciate your opinion of my Residency Tax Status.
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david ingram replies:
In my opinion, you have maintained far too many ties with Canada.
The CRA would have a field day with you and I think you would lose.
Get rid of your goods in storage or get them shipped to a bonded =
warehouse in the US.
Get rid of your Canadian Driver's licences
Don't visit Canada for a calendar year. Get your family to visit you in =
Italy or explore the Grand Canyon with them.
Read the following David MacLean (Saudi Arabia) and Dennis Lee Case and =
the Judge Teskey Decision.
So 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":
- past and present habits of life;
- regularity and length of visits in the jurisdiction asserting =
residence;
- ties within the jurisdiction;
- ties elsewhere;
- permanence or otherwise of purposes of stay;
- 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);
- residence of spouse, children and other dependent family members in a =
dwelling maintained by the individual in Canada;
- memberships with Canadian churches, or synagogues, recreational and =
social clubs, unions and professional organizations (left out mosques);
- registration and maintenance of automobiles, boats and airplanes in =
Canada;
- holding credit cards issued by Canadian financial institutions and =
other commercial entities including stores, car rental agencies, etc.;
- local newspaper subscriptions sent to a Canadian address;
- rental of Canadian safety deposit box or post office box;
- subscriptions for life or general insurance including health insurance =
through a Canadian insurance company;
- mailing address in Canada;
- telephone listing in Canada;
- stationery including business cards showing a Canadian address;
- magazine and other periodical subscriptions sent to a Canadian =
address;
- Canadian bank accounts other than a non-resident account;
- active securities accounts with Canadian brokers;
- Canadian drivers licence;
- membership in a Canadian pension plan;
- holding directorships of Canadian corporations;
- membership in Canadian partnerships;
- frequent visits to Canada for social or business purposes;
- burial plot in Canada;
- legal documentation indicating Canadian residence;
- filing a Canadian income tax return as a Canadian resident;
- ownership of a Canadian vacation property;
- active involvement with business activities in Canada;
- employment in Canada;
- maintenance or storage in Canada of personal belongings including =
clothing, furniture, family pets, etc.;
- obtaining landed immigrant status or appropriate work permits in =
Canada;
- 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."=20
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.
Hope this helps
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321=20
New email to [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 =
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 in =
connection with personal or business affairs such as at www.centa.com. =
If you forward this message, this disclaimer must be included."
Be ALERT, the world needs more "lerts"
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, David Ingram 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
This from "ask an income tax and immigration expert" from www.centa.com =
or www.jurock.com or www.featureweb.com. David Ingram deals on a daily =
basis with expatriate tax returns with:
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state tax returns, etc. Rockwall, Dallas, San Antonio and Houston Texas
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Immigration Tips, Income Tax and Immigration Wizard Income Tax and =
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Reporting $10,000 cross border transactions
Alaska, Alabama, Arkansas, Arizona,=20
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