Malaysian non-resident of Canada taxed at Canadian Employer source - Article IV Canada Malaysia Income tax Treaty -

QUESTION:

I have lived out of Canada since 1997. (the last yr which I submitted my tax return as departing Canada). Since 97 I have lived and worked in China, Hong Kong and Malaysia where I payed the local taxes. I am Married to a Malaysian and consider Malaysia my home. We have a residence in Malaysia and also have a child born in Malaysia, I also support my wifes children from her previous marriage.  
Recently I have been employed by a Canadian company but working for them in Malaysia and they have been withholding a hypo tax at source paying me out of Canada. I have been having CPP an UI premiums among others deducted as well. I have been issued a T4 for 2007 and looks like I have to file a return.
My question is, should they be having Canada tax withheld and should not my only obligation be to Malaysia tax since I am on a work permit and reside here.
I have no ties to Canada other than my payroll deposits.
Thanks

---------------------------------------------------

david ingram replies:

File a Canadian return and exempt all the income on line 256 as a non-resident of Canada. 

Under article IV of the Canada Malaysia Income Tax Convention, you are clearly only taxable in Malaysia.

The advantage of what they did is that you will get another year of CPP benefits. 

Article IV

Fiscal Domicile

1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management, place of incorporation 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 Contracting States, then his status shall be determined as follows:

a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (hereinafter referred to as his "centre of vital interests");

b) if the Contracting 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 Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting 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 Contracting States, the competent authorities of the Contracting States shall be mutual agreement endeavor to settle the question and to determine the mode of application of the Agreement to such person.

------------------------------------------
Glad to look after it for you if necessary