Lives in Grand Cayman Islands - Judge Teskey - Ask an

david ingram replies:
If you are an American Citizen living anywhere in the
world, you must still file a US Income tax return no
matter where you live, no matter what you work at, no
matter where the money is paid from.  You must also pay
tax on any investment income from another country as
well as the US.
If you are a Canadian citizen living in a third country
without an income tax treaty with Canada (such as the
Caymans), you do not have to file a tax return in
Canada if you have given up your Canadian medical, your
Canadian driver's licences, Canadian Credit Cards,
union memberships, house, apartment, cars, etc. You can
have a non-resident bank account, keep your RRSP
accounts (don't buy more), and even keep your family
house and investment real estate if it is rented out to
strangers on one year (or more) leases.
If you are in any one of the 100+ countries that Canada
has a treaty with, Article IV of the treaty kicks in
and taxes you on world income in the country with which
your closer connections can be determined.
The following answer to a previous question and the
included tax cases will give you an idea.  It is a
small part of the US/Canada Income tax section which
you can find at Pay attention to The
Judge Teskey decision in Teskey.
I'm making a permanent move out of Canada November
15/2004 and also =
retiring on the same date.  On January 1, 2005, I will
receive a one =
time lump sum payment from my employer for banked
overtime.  The payment =
will be included on my 2005 T-4 slip.  Will this
payment affect Revenue =
Canada's ruling as to me being deemed a non resident of
Canada beginning =
January 1, 2005? =20
Please acknowledge receipt of this email and I will
happily forward my =
MasterCard number to you so you can charge me the
appropriate amount.
david ingram replies
This barely got to me and had been dumped by the system
because it went to the board as a reply (I think) which
it will not accept.
questions should go to taxman at
In and of itself, the T4 in 2005 does not make you a
resident of Canada.  Other items will be the defining
factor.  For instance, if you go to live in any tax
treaty country, Article IV of the treaty governs your
residency for tax purposes.
If you go to Panama or the Caymans or Bahamas, you have
to pay real attention to anything Canadian.  I say that
to be "sure", you stay out of Canada for two full
No visits to kids,
No visits to ex wives
No bank accounts except a non-resident account with tax
being withheld at source
no Provincial driver's licence
No furniture in storage
BUT renting your old house out to a stranger on a long
term basis is fine
If someone needs to visit with you, "YOU" go to Niagara
Falls New York or Calais, Maine or Pembina North Dakota
or Bellingham in Washington and have your friends come
down and visit you in the US for that first two years.
Well read the following:
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.
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
     - 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
     - rental of Canadian safety deposit box or post
office box;
     - subscriptions for life or general insurance
including health insurance through a Canadian insurance
     - 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
     - active securities accounts with Canadian
     - 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
     - burial plot in Canada;
     - legal documentation indicating Canadian
     - filing a Canadian income tax return as a
Canadian resident;
     - ownership of a Canadian vacation property;
     - active involvement with business activities in
     - employment in Canada;
     - maintenance or storage in Canada of personal
belongings including clothing, furniture, family pets,
     - 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."
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
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.
The Tax departments in Canada and the U.S. issue Interp
retation 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.
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.
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.
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.
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.
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  10 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
Answers to this and other similar  questions can be
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