I'm a Canadian currently working in Los Angeles, USA and I've been working in US since Oct 2007. I don't have any property in Canada and I drove my car to LA when I first moved here. I have already registered my car in USA and Vancouver car insurance and registeration was already expired a year ago. For year 2008, I have not been in Vancouver for more than 183 days. On 2007 income tax return, I already claimed that I've moved to US. So...my question is...do I have to file my income for year 2008?
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
OUT OF CANADA AND RESIDENT - IN CANADA AND
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
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.
"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
and present habits of life;
regularity and length of visits in the jurisdiction asserting residence;
within the jurisdiction;
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);
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;
maintained by the individual in Canada;
memberships with Canadian churches, or synagogues, recreational and social
clubs, unions and professional organizations (left out mosques);
unions and professional organizations (left out mosques);
registration and maintenance of automobiles, boats and airplanes in
credit cards issued by Canadian financial institutions and other
commercial entities including stores, car rental agencies, etc.;
entities including stores, car rental agencies, etc.;
newspaper subscriptions sent to a Canadian address;
of Canadian safety deposit box or post office box;
subscriptions for life or general insurance including health insurance through
a Canadian insurance company;
Canadian insurance company;
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;
securities accounts with Canadian brokers;
Canadian drivers licence;
membership in a Canadian pension plan;
directorships of Canadian corporations;
membership in Canadian partnerships;
frequent visits to Canada for social or business purposes;
plot in Canada;
documentation indicating Canadian residence;
a Canadian income tax return as a Canadian resident;
ownership of a Canadian vacation property;
involvement with business activities in Canada;
employment in Canada;
maintenance or storage in Canada of personal belongings including
clothing, furniture, family pets, etc.;
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
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 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.
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.
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.
DEBT SECURITIES - BANK ACCOUNTS
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%.
CEN-TA Cross Border Services - Tax, Visas, Immigration