non resident tax help Qatar- Dubai - UAE - -

Hello,

We are behind on our taxes for the year 2006. We both started off that year working in the northern part of xxxxxxxx (where we had been claiming northern resident benefits on our taxes the past 6 years). On August 1, 2006 we moved to the UAE and my wife started getting income from the xxxxxxxxxxxxxxxx , who withdrew the appropriate tax from her paycheck (I am not employed here). Around November we finally got our non resident status,  retroactive to Aug. 1.  We would like to claim back these taxes already paid.

We have canceled our health cards and drivers license. We have a Canadian bank account because my wife's employer needs it in order to pay her. We trade stocks through on online broker who needed a canadian address to set up an account (we gave them my mother's). We have no income from interests or dividends on these stocks. We have a rental house in BC which is managed by a local real estate agent with long term tenants (I have heard something about an N6 form?) and are paying a mortgage on this. We also have undeveloped acreage for investment purpose but receive no income from this.

We have always filed our taxes ourselves online, but this year seems a little more complicated. We are also concerned about having our non residency status revoked and being taxed retroactively somehow when/if we return to Canada someday.
We would like to have our taxes (federal and quebec) taken care of. Around how much would this cost?

Thank you,

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david ingram replies:

You are stating Aug 2006 and wonder if you are talking about  2006 and 2007 or if you just mean 2007.

You need a tax agent for the rental house in BC  and that requires a form NR-6 be filed and 25% tax deducted on any  rental profit.  Your  bank account should be listed at the bank as a non-resident account.  You should likely find an American or other country on-line broker.  Read Judge Teskey's ruling further on.  The  CRA can reverse their non-resident decision if you have too many Canadianisms.

If you left in 2006, your 1161 (reporting the rental house and the vacant land) is late and subject to a $2,500 fine each.

Glad to look after them for you.  Your non-resident rental return is late - but the 2007 rental return is not due until June 30, 2008.  We quote $900 to $3,000 for out of country returns with $1,200 minimum in the year of move and $300 or so for a rental. That usually includes THE us RETURN AS WELL.   This year as described would likely be  $1,200 because the UAE is actually more time consuming then the routine filing of the USA return.


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the following older questions may help you as well. 


QUESTION:

We moved from Canada on January 1st 2006. . My husband runs a business and I still work for Air Canada (22+years) commuting to the US.

The International Tax Office have helped us in putting our return together for 2006. They told us to file the request for NR status and than sent our Income Tax Returns. I still have tax deduction taken as if I am a resident of Canada.

We also have a condo in Halifax  that we own for 15 years and it has been rented till recently (April 2007).
We didnt know if we were considered non residents or not as I am working for Air Canada. However from the International office we understood we can claim non residency status.
Here is our problem:
We think we needed to file NR status back in January 2006 along with NR6 and NR4 for 2006-2007.
What do we do now?
They already sent us a fine for failing the file a form stating our house in California was investment property in 2005 (which it wasnt, we have a house and two guest houses, the main house was vacant and we used it while waiting for our US visa, renting a condo in Vancouver for that period).
My husband has his assessment from Canada for 2005 at -35000k (loss).
The condo didnt generate income. Canada was taking taxes from my Salary as if I was a resident. We dont have much income and we are suffering from a major financial hardship and not sure how to proceed with CRA as we cant afford to pay penalties. We didnt hide anything. We still dont have NR status.

Do we need to file for voluntary disclosure (we don't owe money)? Do we need to file the NR6 and NR4 along with a consideration for financial hardship?

I wish I could afford your consultation fee but the big mistake of moving to the USA has cost us financially/mentally etc.. and we can barely meet our mortgage obligations. This CRA issue (done unintentionally) is gonna cause us a major financial disaster.
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david ingram replies:

1.    I likely have 27 Air Canada employees who are living out of Canada at the moment.  When Canadian Airlines was flying I had over 100 but an amazing number have taken early retirement or moved back to Canada three to seven years ago as their Canadian dollar lost its spending power. With the difference in the dollar now, I expect a couple of them to return to the USA.

2.    It is too late for you to file a Form NR-6 for 2006 or up to today 1n 2007. An NR-6 is only effective from the day it is filed.  There is no retro activity for the form.

3.   If you are flying domestically, the proper deductions for you are as a resident.  If you are flying Overseas, as a non-resident, you are taxable on your flights that are over Canadian Air Space.  The CRA has prepared a rather sophisticated EXCEL Spreadsheet to assist with the calculation.  You can get hold of it by asking the CRA for a copy. It is, of course, of no use if you are flying domestically.

4.   When you left Canada, you should have filed Forms T1161. 1243 and 1244.  Failure to file form T1161 results in a fine of $25.00 a day (each)  to a maximum of $2,500 each.  Real Estate Property in Canada can be exempted from paying the tax 'now' but real property outside of Canada or Stock or mutual fund holdings or a private company incur the tax right now.  If you owned the Florida property for a day before you left, it would have to be reported and any capital gains from the day you bought has to be paid now or security for the tax posted with the CRA.  This is calculated using forms 1243 and 1244. I will make the statement that 98 out of a 100 Canadian accountants have never seen or filled out a 1243 or 1244 or T1161.  The situation is so 'unknown' that I think that the CRA's leveling penalties is unconscionable. .  If you were penalized, you should write to the FAIRNESS COMMITTEE AND to the minister of National Revenue, Stephen Harper and your local MP before you left.

5.   It may be that you are better off being a taxable resident of Canada as you have described your situation.  It is possible for your husband to be a tax resident of the US and a factual resident of Canada while you are a tax resident of Canada.  At any time, I will have a dozen couples in that situation for one reason or other.

6.   Although the CRA ties to make people tax residents quite regularly, it is my experience that the CRA usually loses when we are dealing with the US IRS because the IRS wants you as a tax resident as well.  Article IV of the treaty is what determines the outcome.  Keeping an empty residence in Canada rally does complicate the decision, particularly if you actually stay in it.

As you have discovered with your property tax inequality, this stuff is technical and it is difficult for anyone to keep up with it all. I used to have 14 offices in Florida and participated in the sale of over 3,000 pieces of real estate in Cape Coral but would not begin today to think that I knew all the ins and outs of municipal tax legislation in Florida,  

Last, but not least, Capt Hauser (of Air Canada) lost his non-resident status in July 2006 in the Supreme Court of Canada.  You should be looking up his case to get ideas about what the latest rules are according to the Supreme court of Canada..

In the meantime, you should go to www.centa.com and read the US/Canada Income Tax section in the second box down on the right hand side. The first half is dedicated or deals mostly with US citizens living in Canada but at just about the very center, you will find several cases dealing with Canadians out of the Country AND the details of Judge Teskey's decision in the Dennis Lee Case. you will also find Article IV of the Treaty a couple of pages in.

What the heck, I will repeat most  of it here in this older Q & A.

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david ingram replies:

Having a green card implies that you either won the Diversity lottery or you married an American.

In either case, if your intention is to live in the US for the rest of or most of the rest of your life, you are taxable on your world income in the US the year you move there and taxable in Canada on the income you earned in Canada before you left and any investment income you have after leaving.

If you are married, you should likely explore the likelihood of filing a joint US return with your husband by reporting the Canadian income as well and claiming foreign at credits on form 1116.  If you do not have children, you should likely claim the exemption on form 2555.

For Canada you will file a departing Canada return and prorate your exemptions on schedules 1 and 428 based upon the number of days you were living in Canada divided by 365.  the departing return should also look at forms T1161 and 1243 and 1244 to see if they apply to you.  From the description given, you will not, but if you happen to own a share of a ski cabin with your brother or some mutual funds, etc., the forms will be necessary.

If you have truly moved to the USA, there is no reason to file an NR73 form.  Article IV of the US/Canada Income Tax Treaty takes over.

The following is an extract from my 1991 Income Tax Book  which you will also find in total (including Article IV at www.centa.com in the second box down on the right hand side under US/Canada Taxation.

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." 

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%.