Prospective client question. -

Sent: Saturday, November 18, 2006 9:42 PM
To: taxman at centa.com
Subject: Prospective client question.
Dear Mr. Ingram,
The internet pointed me towards your website on some particular
tax questions I have for a prospective client couple.
My prospective clients are a retired couple that travel
frequently.  They spend most of their travel time in the USA, but
would be interested in expanding their "away" time by adding
Europe to their list of places to visit.
They have RSPs and income from a real-estate holding company that
generates income from commercial properties in Canada.
The main questions are:
1.  If they were to spend more than 6 months (cumulative) out of
Canada, would they be exempt from paying Canadian Income Tax and
if so, what part of the Income Tax Act clearly illustrates this
law?
2.  In the event exemption is indeed lawful, do the 6 months plus
1 day have to be accounted for all at once, or is this
calculation based on cumulative out of country calculations for
the year in question?
3.  If a Canadian Citizen were to benefit from such law, would
traveling out of Canada for more than 6 months and 1 day force
them to forfeit any rights with respect to Health Care in
Canada?...Please explain.
I thank you for your time.
Regards,
 XXXXXXX  Corporation
------------------------------
david ingram replies:
Ontario requires them to sleep in Ontario 153 days a year to
qualify for OHIP.  Every other province and territory requires
them to sleep in the province for 183 days or more.  However
travelling in seven countries of Europe and 3 US states for 6 1/2
months may keep OHIP alive but it does NOT get them away from
Canadian income tax.
The reason is that to escape Canadian Tax, they have to establish
themselves in ONE OTHER COUNTRY for more than 183 days as legal
residents.
The following older q & a's might help.
My question is: Canadian-specific
QUESTION: We are purchasing a piece of land only in Nova Scotia
and are currently non-residents and will not be returning to
Canada for another 8 years. I am a Canadian citizen and my wife
is Dutch with landed immigrant status. We have a Canadian
non-resident bank account with a line of credit. Would using the
line of credit to finance the property jeopardize our
non-residency status?
Thank you.
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david ingram replies:
If you are in Saudi or Kuwait or Dubai or a country without a tax
treaty with Canada, it could certainly cause a problem. GOTO
www.centa.com and read the middle of the US/Canada Taxation
section which you will find in the second box down on the right
hand side.  Read the David MacLean, Wolf Bergelt, Dennis Lee and
Frederick Reid cases which you will find in the middle of the 30
or so pages.
However, assuming that you are a resident of the Netherlands,
buying the bare land does not jeopardize your non-resident
status.  If you build on it and spend a couple of months a year
there, you could have a problem but would win under Article IV of
the Canada Netherlands Income Tax treaty which I have reproduced
here.
--------------------------------------
Following is a copy of Article IV of the Netherlands Canada
Income Tax Convention
Article 4
Resident
1. For the purposes of this Convention, the term "resident of one
of the States" means any person who, under the laws of that
State, is liable to tax therein by reason of his domicile,
residence, place of management or any other criterion of a
similar nature.
2. Where by reason of the provisions of paragraph 1 an individual
is a resident of both States, then his status shall be determined
as follows:
a) he shall be deemed to be a resident of the State in which he
has a permanent home available to him; if he has a permanent home
available to him in both States, he shall be deemed to be a
resident of the State with which his personal and economic
relations are closer (centre of vital interests);
b) if the State in which he has his centre of vital interests
cannot be determined, or if he has not a permanent home available
to him in either State, he shall be deemed to be a resident of
the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of
them, he shall be deemed to be a resident of the State of which
he is a national;
d) if he is a national of both States or of neither of them, the
competent authorities of the States shall settle the question by
mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person
other than an individual is a resident of both States, the
competent authorities of the States shall endeavour to settle the
question by mutual agreement having regard to its place of
effective management, the place where it is incorporated or
otherwise constituted and any other relevant factors. In the
absence of such agreement, such person shall be deemed not to be
a resident of either State for the purposes of Articles 6 to 21
inclusive and Articles 23 and 24.
--------------------------------
The following Q & A well not on topic does deal with offshore
stuff.
I read a book called Take Your Money and Run by Alex Doulis
How practical is this? Can I really go and live in the Turks and
Caicos or Bahamas or Costa Rica and escape Canadian Income Tax
and still come back and visit in Canada?
---------------------------------------------------
david ingram replies:
This is a very dangerous book.  It is a completely different set
of circumstances to decide to do something like this and research
it and then do it and buy the book and decide, "I can do that".
You can order the book and see more about the subject at his own
web site:
 http://www.alexdoulis.com/takeyourmoney.htm
----------------------------------------------
Doulis was able to get Italian Citizenship and then established
residence in the Netherlands which at the time had a treaty with
Canada that allowed his RRSP's to be withdrawn tax free.  He has
spent most of his time on a boat in Europe in countries that have
tax treaties with Canada.  If Revenue Canada had attacked him, he
could claim the benefits of a tax treaty.
The problem is that most people who want to do this want to go
and live in the Caribbean, not the Mediterranean.  In the last
ten years I have had five or six people suggest Spain.  I have
had 1,000 suggest the Caribbean.  In fact as i write this, one of
those people is at my house after spending 15 years in Jamaica
and finally coming back to Canada and Vancouver because he did
not want to raise his son in Jamaica.
The best country to do this with is Mexico so far as i can see.
It's warm, has good medical services and HAS A TAX TREATY WITH
CANADA.
A whole bunch Air Canada and Canadian Air Line personnel have
tried to escape Canadian Income Tax and established residences in
the US, Mexico, Costa Rica, the Bahamas and St Vincent.  They
continued to work for CAIL and/or AIR CANADA and flew
International flights so they would come up to Vancouver or
Toronto and catch a flight to Narita, Hong Kong, England or, or,
or but the point was that they were not working in Canada.
The CRA even produced a special EXCEL Spread sheet with every
flight listed and provided it to us to use to calculate the
flying time over Canada because part of the situation was that
the CRA still wanted tax for the time that the plane was flying
over Canadian Air Space.
However, those that lived in the Costa Rica or the Bahamas or St
Vincent had a problem.  Going home after every flight was time
consuming.  They would stay at their brother's, mother's,
mother-in-law's, friend's or fellow employee's place between
flights.
This meant that they are not in their country of residence for
more than 183 days.  Canada insists that if you are a Canadian
and claiming non-resident status, you had better be in your
country of residence more than 183 days.  In other words, if you
spend 140 days flying internationally, 80 days in Canada while
you catch a flight or depart from a flight and only manage 120
days in your country of residence, Canada will say "gotcha" and
tax you.
If you go to www.centa.com and read the US/Canada Taxation
section in the second box down on the right hand side, you will
see some interesting cases.
David Mclean was in Saudi Arabia for seven years but taxed when
he came back because he kept a house available for him in Canada.
Heck, he even had a letter from the CRA saying he was a
non-resident for tax purposes..
Wolf Bergelt  was only gone for four months and left his house
with his wife and kids in it.  The judge ruled him a non-resident
because he intended to leave.
Dennis Lee was not even granted landed status in Canada but was
taxed because he had a Canadian wife and had co-signed a mortgage
for her. He had wanted to come and live in Canada.
Frederick Reed lived in Bermuda but kept a car (in his father's
name) in Nova Scotia.  He was taxed because of a car.
Not put in yet is the case of Air Canada pilot Ray Hauser.  He
lost his Federal Court of Appeal case in July 2006 after losing
his original case in August, 2005. He had stayed at his
mother-in-law's place and kept clothes there as well.  He also
had a car for a while and he was in Canada more than 180 days two
of the years 1998 and 2000. He used Canadian medical services and
his wife spent a lot of time in Canada.
If you want to escape Canadian Taxation, you have to sever almost
every tie if you are not in a Tax Treaty country.
If you do decide to leave, be careful.  It is not easy and the
book you mention is very dangerous without competent advice to go
with it.
Read my November 1995 and March 1996 newsletters on offshore
trusts before you do anything - you can find them at
www.centa.com in the top left hand box.
And if you do decide, be careful who you deal with.
Scott Brown ran off with $20,000,000 of other people's money
while advising them how to set up offshore.
Hoffman ran off with $20,000,000 of other people's money while
advising them how to set up offshore.
Nick Masee, the Bank of Montreal's first personal banker in BC
disappeared with anywhere from $10 to $50,000,000.
And Jerome Schneider helped over 1,000 people to set up offshore
and then turned them all over to the IRS after he was arrested.
---------------------
Read the following
News release
OTTAWA, ONTARIO, August 3, 2006 -- Officials of the Canada
Revenue Agency (CRA) and the United States Internal Revenue
Service (IRS) today announced significant progress in unravelling
an abusive cross-border tax scheme. This effort stems from leads
and information first developed by the Joint International Tax
Shelter Information Centre (JITSIC).
The scheme involves hundreds of taxpayers and tens of millions of
dollars in improper deductions and unreported income from
retirement account withdrawals. Canadian and U.S. promoters have
been marketing the scheme on both sides of the border to
individual investors, ranging from middle to high-income
individuals.
Leaders of the CRA and IRS said the collaborative effort reflects
the progress being taken by JITSIC in the complex task of
tracking international tax schemes and shelters involving
individuals and corporations.
CRA Commissioner Michel Dorais said, "Tax administrations in many
parts of the world are working together to detect and shut down
abusive tax schemes. Promoters who believe they can play one
country against another in developing tax schemes should beware."
"The real time exchange of information, including the identities
of promoters and hundreds of investors has been critical to this
investigation," said IRS Commissioner Mark W. Everson. "JITSIC is
emerging as an important part of efforts to combat abusive
schemes."
Under the scheme, investors purchased what appear to be
high-yield offshore investments through offshore corporations and
foreign bank accounts. Typically, investors make these purchases
using cash or proceeds from withdrawals, allegedly tax free, of
retirement funds (RRSPs in Canada, IRAs in the U.S.). Investors
also make purchases through using tax refunds improperly
generated by alleged losses claimed for natural resource industry
investments.
CRA and IRS agents continue to identify promoters, participants
and entities involved in the scheme. Promoters and participants
engaged in abusive schemes have routinely been subjected to
strict enforcement action by both tax administrations.
JITSIC was established in 2004 by the tax administrations of four
countries, Australia, Canada, the United Kingdom and the United
States, to supplement the ongoing work of the Australian Taxation
Office, Canada Revenue Agency, Her Majesty's Revenue and Customs,
and the Internal Revenue Service in identifying and curbing
abusive tax schemes. Delegates from each of the four countries
work together in Washington, DC.
=============================
For a follow up definition (by the CRA) of the difference between
tax avoidance and tax evasion, see:
 http://www.cra-arc.gc.ca/agency/alert/avoiview-e.html
For an example of the prosecution by the IRS of a Vancouver
resident, see the New York times articles at:
http://topics.nytimes.com/top/reference/timestopics/organizations
/i/internal_revenue_service/index.html?query=SCHNEIDER,%20JEROME&
field=per&match=exact
or my own CENTAPEDE WHICH DEALS WITH OVER $100,000 OUT OF Canada
at;
http://www.centa.com/CEN-TAPEDE/archive/Week-of-Mon-20051010/0020
95.html
Jerome Schneider turned over 1,000 of his clients and the lawyers
and accountants who helped over to the IRS as part of a plea
bargain.
--------------------------------------------------
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa
Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 10 PM 7 days a week  Vancouver (LA)
time -  (please do not fax or phone outside of those hours as
this is a home office)
email to taxman at centa.com
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
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duties are expressly denied. All readers should obtain formal
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