QUESTION:

Hi there

I am a US Citizen and in 2004 I worked in Canada for a few days. (filmed a commercial via temporary work visa)

Starting in 2004 and still ongoing, I receive checks for this work via a US company. US taxes are properly deducted and I always receive a W-2 and pay US taxes. Starting in 2006, Canadian tax was also withheld from these checks. (I paid US tax and Canadian tax) Hence, for the 2006 tax year, I received a Canadian form = NR4. The forms states that I paid (withheld from my checks) over $3K. Also, I have not physically been in Canada since 2004.

Am I entitled to get this $3K back from Canada? (should I be paying taxes to both US and Canada) If yes, what do I do with this NR4 form? I have searched the Canadian Gov sites, but I am lost.

thanks

_________________________________________________________________
david ingram replies:

The problem is that the first two years were done incorrectly. You should have received a T4A-NR (not an NR4) with Canadian Tax Deducted for each of 2004, and 2005 as well.

There is no refund from Canada. Article XVI of the US Canada Income Tax treaty mandates withholding taxes for Canadian actors in the US and for American Actors or entertainers in Canada. AND, you were liable to file a Canadian tax return for the first year you earned the money.

Remember that visa you obtained to work in Canada? Well along with the visa was the responsibility to pay tax on the earnings to Canada. This is exactly the same principal that has a US actor from New York paying tax to California on any money earned in California (or Colorado or Arizona for that matter).

The company you were working for and your accountant did not know what they were doing. I have a California actor's return beside me right now where Canada has issued assessments for almost $200,000 for the years 1997 to 2005 when he did exactly what you have done. Came here, worked, got paid and then reported everything on his 1040 and 540 California return and ignored Canada. When questioned, his accountant, an enrolled agent, wrote an 'astonished' (and very naive) letter to the Canadian Tax Authorities stating that his client had reported everything e did not.

I have another one where Canada only wants $6,000 for work done in 2003. The problem is that the employers think they are doing you a favor by not deducting tax.

Properly, to stop the same thing happening to you, you should be preparing a 2004 and 2005 return and paying Canada its tax before they catch up and tax and fine you.

It is not double taxation however. The tax you pay Canada is reclaimed on the US 1040 by filing form 1116 and claiming a foreign tax credit. The only time this would not work is when you only make money in Canada and lose in the US. If this is the case, there sometimes is not enough tax owing to claim the credit. However, it is still not all lost because you get to carry the unclaimed amounts forward for up to 5 years.

If you need help you now know where we are.

My question is: Canadian-specific

QUESTION: I want to sell my vacation property, which is not my principal residence. It has increased in value three-fold in 10 years and I want to minimize my capital gain tax. I am planning on buying another vacation home soon after.
If I arrange with the buyer, if willing, to hold part of the title and become their lender, can I transfer title as they pay down the principal, declare their interest as income, but spread the capital gain over multiple taxation years? If this plan works, what are the pitfalls, assuming I am willing to take the risk of the buyer's credit?

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david ingram replies:

1. You have the choice of making the vacation home your personal residence and claiming it tax free if you wish. If you choose to do so, the home you live in is now subject to capital gains tax covering the same time period. BUT, you do not need to calculate the tax or pay it now. It only becomes a problem when you sell that home. Even if it has gone up more than the vacation property, a good argument can be made that the deferred taxation is worth taking a future hit on a larger profit. Of course, this depends upon how long, how much and the tax law int he future.

2. you can carry the paper and defer the tax on the vacation home over a five year period. However, this is really only a good idea if you do not need the money to buy the next home. If you do, the non-deductible interest paid on the next house AND having to pay tax on the interest you are receiving will likely exceed any perceived tax saving by spreading the capital gain over five years.

Time to get to work on the spread sheets.

QUESTION: my father sold some land in 2006 for quite a profit, unfortunatly he did not plan ahead on the sale, he sold the land for a lump sum payment of $365,000, he purshased it for $104,000 & had the land for 4 years before selling, he had to borrow money (which he borrowed against his primary residence) to pay the land off before the final sale in the amount of $85,000 along with fees in the amount of $6,000 for borrowing the money. After the sale he paid the loan off & put the rest in cd's, he is over 65 & is normally in an under $20,000 tax bracket, does he have to pay capital gains on the entire difference in the purchase & sale price or can he deduct the amount of the loan with the interest he had to pay, also is there any way to deduct the amount he reinvested in the cd's? (the cd's are 1 year cd's). Also can he defer any amount of the tax due untill next year or later, Any help is appreciated as I am the one who does his taxes & honeslty have
no idea, I think I !
know the answer but just want to be sure.
Thanks ahead for any help
_________________________________________________________
david ingram replies:

The following comes from my August 1994 newsletter in the top left hand box at www.centa,com


Examples of Increases to Basis (Additions to cost price):

* An addition to the property (new room, lift and put a basement underneath).

* Replacing an entire roof.

* Paving a driveway, or building a driveway, or an approach bridge or culvert.

* Installing central air conditioning.

* Legal fees and closing costs to purchase property.

* Survey costs, fencing, digging or drilling a well.

* Installing septic tank or alternative energy source.

* Rewiring building, replumbing entire building.

* Assessments for local improvements: water connections, sidewalks, roads.

* Casualty Losses - restoring damaged property.

* Interest and taxes not used as a deduction in other years (US only).

Examples of Decreases to Basis:

* Exclusion from income of subsidies for energy conservation measures.

* Insurance reimbursements.B

* Casualty or theft loss deductions.

* Easements (amount received for granting an easement).

* Credit for qualified electric vehicles, (amount of the credit).

* Gain from sale of old home on which tax was postponed (family residence only).

* Residential Energy Credit: Amount of the credit if the cost of the energy item was previously added to the basis.

* Section 179 Deduction.

* Deduction for clean-fuel vehicles and clean-fuel vehicle refuelling property.

* Depreciation: The greater of the depreciation deduction which decreased your tax liability for any year or the deduction you could have claimed under the depreciation method selected.

* Corporate distributions: Non-taxable amount.

_______________________________________________________________
Putting the money into CD's does not create a tax deduction or shelter or deferral

The following is a direct copy from IRS Publication 551 - http://www.irs.gov/publications/p551/ar02.html#d0e820

You can also find more in Chapter 8 of Publication 535 - http://www.irs.gov/publications/p535/ar02.html#d0e820

Adjusted Basis
Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. The result of these adjustments to the basis is the adjusted basis.

Increases to Basis
Increase the basis of any property by all items properly added to a capital account. These include the cost of any improvements having a useful life of more than 1 year.

Rehabilitation expenses also increase basis. However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. If you have to recapture any of the credit, increase your basis by the recaptured amount.

If you make additions or improvements to business property, keep separate accounts for them. Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. For more information, see Publication 946.

The following items increase the basis of property.

The cost of extending utility service lines to the property.
*
Impact fees.
*
Legal fees, such as the cost of defending and perfecting title.
*
Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements.
*
Zoning costs.
*
The capitalized value of a redeemable ground rent.
*
Assessments for
Local Improvements
Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Do not deduct them as taxes. However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements.

Example.

Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Add the assessment to your property's basis. In this example, the assessment is a depreciable asset.


Deducting vs. Capitalizing Costs
Do not add to your basis costs you can deduct as current expenses. For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. However, you can choose either to deduct or to capitalize certain other costs. If you capitalize these costs, include them in your basis. If you deduct them, do not include them in your basis. (See Uniform Capitalization Rules, earlier.)

The costs you can choose to deduct or to capitalize include the following.

Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules.
*
Research and experimentation costs.
*
Intangible drilling and development costs for oil, gas, and geothermal wells.
*
Exploration costs for new mineral deposits.
*
Mining development costs for a new mineral deposit.
*
Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical.
*
Cost of removing architectural and transportation barriers to people with disabilities and the elderly. If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit.
*
For more information about deducting or capitalizing costs, see chapter 8 in Publication 535.


Table 1. Examples of Increases and Decreases to Basis

Increases to Basis Decreases to Basis
Capital improvements:
Putting an addition on your home
Replacing an entire roof
Paving your driveway
Installing central air conditioning
Rewiring your home Exclusion from income of subsidies for energy conservation measures

Casualty or theft loss deductions and insurance reimbursements

Credit for qualified electric vehicles
Assessments for local improvements:
Water connections
Sidewalks
Roads Section 179 deduction

Deduction for clean-fuel vehicles and clean-fuel vehicle refueling property
Casualty losses:
Restoring damaged property Depreciation

Nontaxable corporate distributions
Legal fees:
Cost of defending and perfecting a title
Zoning costs

Table 1. Examples of Increases and Decreases to Basis

Increases to Basis Decreases to Basis
Capital improvements:
Putting an addition on your home
Replacing an entire roof
Paving your driveway
Installing central air conditioning
Rewiring your home Exclusion from income of subsidies for energy conservation measures

Casualty or theft loss deductions and insurance reimbursements

Credit for qualified electric vehicles
Assessments for local improvements:
Water connections
Sidewalks
Roads Section 179 deduction

Deduction for clean-fuel vehicles and clean-fuel vehicle refueling property
Casualty losses:
Restoring damaged property Depreciation

Nontaxable corporate distributions
Legal fees:
Cost of defending and perfecting a title
Zoning costs
Decreases to Basis
The following items reduce the basis of property.

Section 179 deduction.
*
Deduction for clean-fuel vehicles and refueling property.
*
Nontaxable corporate distributions.
*
Deductions previously allowed (or allowable) for amortization, depreciation, and depletion.
*
Exclusion of subsidies for energy conservation measures.
*
Credit for qualified electric vehicles.
*
Postponed gain from sale of home.
*
Investment credit (part or all) taken.
*
Casualty and theft losses and insurance reimbursements.
*
Certain canceled debt excluded from income.
*
Rebates from a manufacturer or seller.
*
Easements.
*
Gas-guzzler tax.
*
Tax credit or refund for buying a diesel-powered highway vehicle.
*
Adoption tax benefits.
*
Credit for employer-provided child care.
*
Some of these items are discussed next.

Casualties and Thefts
If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance.

You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. To make this determination, compare the repaired property to the property before the casualty. For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts.


Easements
The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain.

QUESTION:

hello.

I am a canadian citizen who is now living in the USA as immigrant, and have about 24,000 c$ in rrsp back in Canada. Will I be taxed if I pull that money out to help my daughter in her university? Is there anyway to take that money without paying so much tax?

please help.
____________________________________________
david ingram replies:

Canada will take 25% of whatever you withdraw as a non-resident. Do NOT get caught by the fact that you can take out $5,000 with only a 10% tax deduction. The CRA will catch up to you and then you have a big bill when you don't expect it and can't afford the hit.

I hope that you have been filling out US forms T D F 90-22.1 and 8891 to report your RRSP to the IRS and the Treasury. Failure to file these two forms can result in extreme penalties of more than the money in the RRSP because the IRS considers your RRSP to be a foreign Trust. See the two questions on the bottom of Schedule B with your 1040 to see where this is coming from.

This older question will help a bit as well.

I have been offered the opportunity to be employed by a California based US company that conducts e-tail business. I am a Canadian citizen and would still be residing in Canada. Both the prospective employer and myself are trying to look for any regulations governing such a situation. In particular I am interested in the tax implications for myself. I'm wondering if it makes more sense for me to just set myself up as a company, bill these folks for my services, and then worry about the taxes myself.

___________________________________________________________
david ingram replies:

I am too busy to answer at this time. This older question has your answer. However, disregard the need to file a US tax return. US citizens have to file a US return no matter where they live.
------------------------------------------
QUESTION:

Hi,

I'm an American citizen residing in Canada (permanent resident) and working for an American company remotely from home in Canada. I get a W2 at year-end. I assume I have to file both US and Canadian tax returns.

My questions are :
1) Do I file a US tax return and claim a foreign tax credit on my Canadians tax return. Or is it vice versa?
2) Do I still file state/local tax return in the US (I lived in Maryland prior to landing in Canada), even though I now reside in Canada?
3) For the extra tax I end up paying to the 2nd country (in excess to what I pay to the first country), can I claim any type of credit or deductions on that tax in next tax year?

Thank you very much!


====================================================
david ingram replies:

If you are working in Canada, you should not be getting a W-2. The reason is that as a resident of Canada, you should not be paying into US Social Security or Medicare or paying basic income tax to the USA.

Your first tax liability for services rendered in Canada under Article IV of the US Canada Income Tax Treaty is to Canada.

You should be filing a Canadian T1 return and paying Canada and provincial income tax and Canada or Quebec Pension Plan first. Then you would file your US return and either:

1. Use form 2555 to exempt up to $82,400 of income from US tax and then file US form 1116 to claim a foreign tax credit on the excess OR

2. Use form 1116 to claim the foreign tax credit on your US return for tax paid to Canada. If you have children, you would usually do the latter because it would usually qualify you for the $1,000 per child USA refundable tax credit.

3. In the case of interest (10%) and dividends (15%), you must get any excess tax back from the US by reclassifying the income on form 1116.

4. In the case of interest, you can claim the difference between 10 and 15% as a deduction on Canadian schedule 4.

5. You should NOT be paying into a US 401(K) or US Social Security. Canada will not allow the 401(K) as a deduction.

Your employer should start paying you on a 1099 Basis and pay you your salary plus their share of Social Security plus their share of Medicare plus their share of any 401 or other pension plan they contribute to.

QUESTION: I live with a friend in a house we bought together. We do share a bed, but we do not have "relations". He has his income and expenses and I have mine. We have our own bank accounts and our own medical plans. We only share a house and the food expenses. Are we considered "common-law" for income tax purposes? I have 3 kids that I support; they are not dependent upon him in any way, shape, or form.
Thanks!
_____________________________________________
david ingram replies:

I have to say that if you are sharing the intimacy of a bed with or without sex and own a house together, you would be considered a common-law couple without a doubt.

If you were in separate bedrooms and he had a regular friend and you likelwise, my answer would be different.

I have been bantering back and forth with a possible offer to work for the government of Dubai.. if I do accept the offer and go, I want to keep my condo and my car here in Canada... I will establish a residence there as well.. my question is how much tax will I have to pay out of my income from over there.. I do not wish to sell everything and put it in storage... the car maybe, but it is a lease and I don't currently own it.. but Dubai is ready to take care of my obligations here, so I say keep it.

Thanks for your time

_______________________________________________________________
david ingram replies:

If you keep a car and home here and return for visits, you will be taxable at full rates on whatever you earn in Dubai.

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.

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, FrederickReed 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%.

QUESTION: I recently took a trip to Winnipeg to view property. My costs were flight, car rental,gas, food, entertainment, etc... I am planning on more trips like that one, so how do I organize my costs and reciepts? Is it better to just have categories like food, tracel, accomadation, etc.... and put all reciets from different trips together, or should I keep each trip seperate, and keep the costs specific to each trip?

Thanks for your time.

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david ingram replies:


A trip to Jamaica, Hawaii, the Canary Islands or Fiji to look at property is NOT deductible.

Neither is a trip to Winnipeg, Halifax, Toronto, Vancouver or Whitehorse.

Think of it another way. If you had $1,000,000 in a safe deposit box in Toronto and went there to take money out of it, would you think you could deduct the cost of the trip.

If you 'do' buy something, then I have no problem with your adding the cost of the trip to the cost of the purchase which means that it would increase the adjusted cost base but it is not deductible from general revenue in the ordinary cost of business.

We just had the same thing with a person who traveled to a lot of places to investigate buying a cafe and eventually bought one. He tried to write off all the exploratory trips to different cities and was turned down by the CRA.

And just before that, we had the same situation with a person who had traveled to several places looking to buy a jewelry store. Turned down for all of the trips that he had taken with no purchase and allowed to capitalize the one where he bought the business.
Unfortunately, a couple of the 'nothing down' seminars still talk about taking a tax deductible trip to Jamaica to look at property. I assure you that the trips are not deductible.

And, if you do buy that property to rent out in Jamaica, Hawaii or Halifax, a trip there every year or two to look at it is NOT deductible either. This is a place where people do deduct their annual trip to Hawaii and then get a rude tax shock when the IRS or CRA re-assesses them for three years back. The really rude part is that they spent more than they would usually spend because they thought it was 'tax deductible'.

The US and the IRS is different. If you do make that trip to Hawaii because of a need to deal with the rental house, the IRS will allow the deduction if you did not occupy the house. If you did stay there while spending 5 days cleaning, painting and repairing (and can prove that), you would likely get the deduction as well.
Canada is the worst at this though. 'I' personally lost the plane tripes to my Beverly Hills Office back int he 70's and 80's in a thirty day court trail before the Tax Court of Canada. Even though, a typical trip involved flying from Toronto to LA, working for a day and flying to Vancouver the same night, 'de judge' turned down the LA flights with a silly comment about 'the Canadian Tax Payers not needing to pay for my trips to sunny climes.'

It was work, work, work but Judge Mogan just did not get it.

He allowed the flights from Vancouver to Toronto, Toronto to Ottawa, Ottawa to Toronto and disallowed Toronto to LA and LA to Vancouver.

And all trips were to operating offices. Although I do not own them anymore the Three offices still exist although the #10 Toronto street office is no longer in that location. The #10 Toronto Street Office is 'sort of' in the limelight right now as well. It was a smallish building better known as the world headquarters of Conrad Black who is on trial in Chicago and is the building that they show him moving his files out of.

So a little personal stuff, a little history, and a little association all to say that the exploratory trip is not deductible in either country even though I see people on a regular basis who have been deducting their annual trip to Hawaii to 'look at' their vacation property.

I won't deduct the annual trip although where there is a two or three day trip because of an emergency where physical presence is desirable such as after a hurricane.

My girlfriend (who is a U.S. citizen, but a permanent
resident of Canada) will soon be contributing to a
pension-plan with her Canadian employer. Like most
pension plans, her employer will be matching her
contributions 100 percent.

Now, I know that the IRS considers accrued income
inside RRSPs taxable, even though the earnings are not
yet distributed--therefore, you have to report such
"earnings." every tax year. I also know that you use
form 8891 to defer taxation on these RRSP earnings.
However, how do you go about reporting income accrued
inside an employee pension plan? Does the malevolent,
overreaching IRS attempt to sink their teeth into
pension-plans too? Is there a specific form for
Canadian [employee] pension plans?


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david ingram replies:

Although the original intention was to require Company pensions to be reported, that seems to have disappeared. Nothing is being reported at the moment that I know of.

Anyone else with an opinion here?