Hello,
> I saw one of your posts online and wondered if you could provide some adice for my situation.
>
> I have been living and teaching in South Korea for over 2.5 years now (since August 2004). I have filed tax returns in Canada for 2004 and 2005. For 2005, I applied for non-resident status but was denied based solely on the fact that I am not a resident of Korea. I applied for non-resident status again for 2006, but again was refused based on the same rationale. In 2006, I never visited Canada and my health benefits expired from being away for too long. My links to Canada are student loans, a passport, credit cards, and a drivers' license. I was wondering what your suggestion is for this situation and what I can do to avoid being taxed on my foreign income (Korean income - which I am taxed on in Korea) from CCRA. Thank you for your tim
> xxxxxxxxxxx
> __________________________________________________________
david ingram replies:

Get a Korean Driver's licence - Get a Korean credit card

hard but it can be done

Get rid of your Canadian driver's licence and credit cards.

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:

Hi, I had worked in Australia last year for 3 months under a tourist working visa and was taxed very heavily. I was wondering how to get my taxes back (including superannuation).
_____________________________________________________________________
david ingram replies:

The asuperannuation is lost. However, you can file an Australian return and get some, if not all of the tax deducted back. However, the income has to be reported upon your Canadian return because as a Canadian resident, you are taxable on your world income. Any tax you leave behind will be a tax credit on line 431 of your Canadian return.

You can get hold of the Australian forms you need at http://www.australia.gov.au/73

My_question_is: Applicable to both US and Canada
Subject: Zero tax return filing for USA
Expert: [email protected]
Date: Monday February 19, 2007
Time: 10:33 AM -0500

QUESTION:

Dear Sir,
I have applied for Green Card (Labor cleareed , currently filed I-140).
Right now I am working on H1b daily commuting from Canada( Permanent
Resident. I will keep working in Canada tuill I can work.
I may lose contract in USA and have to working in Canada.
One of the condition for green card is to file regularly US tax returns.
My question if I was not for a single day in USa, cna I still file zero
return. What I will show as my status( I might not have h1b at that time
too)?
Thanks a lot

-------------------------------
david ingram replies:

If you are commuting to work in the USA, you must file a US tax return first
and then refile the same amounts in Canada and claim the tax paid to the US
as a foreign tax credit on line 431 of your Canadian return.

Anyone with a green card must still file a US return no matter where they
live or where they work. This return MUST report their world income.

Goto www.centa.com and read the US/Canada Taxation section in the second box
down on the right hand side.

My_question_is: Applicable to Another Jurisdiction or Multi-jurisdictions
Subject: Estate Tax
Expert: [email protected]
Date: Tuesday February 20, 2007
Time: 07:16 PM -0500

QUESTION:

Is there any estate tax implication for an inheritence for a Mexican citizen
who has permanent resident status in Canada?

--------------------------
david ingram replies:

There is no Canadian Tax on the inheritance received.

If the inheritance arose in Canada, any capital gains tax or tax on RRSP or
pension amounts are paid by the estate of the deceased person.

Canada does not have an inheritance or estate tax although we do have an
estate tax return.

My_question_is: Applicable to both US and Canada
Subject: Non Resident alien - On a NATO-2 Visa in the US, married to US Citizen
Expert: [email protected]
Date: Monday February 19, 2007
Time: 05:24 PM -0500

QUESTION:

I am active duty military in the US as a non-resident alien, married to a US Citizen living in the US throughout the entire tax year.IRS Pub 519 chapter 1 says that we can make a declaration to be treated as US residents for the tax year and file jointly in the US with me declaring it as worldwide income. What are the implications from Canada - who has considered me a Deemed resident for the year and taxed me accordingly. Under the tax treaty the US should consider tax paid on foreign earned income as Tax Credits?

-------------------------------------------------------------
david ingram replies:

Under Article XIX of the US / Canada Income Tax Treaty you are not taxable on the US return on your Canadian Income.

You will report it as income on line 7 of the return and deduct it on line 21 as a deduction under Article XIX of the US / Canada Income Tax Convention (Treaty).

You might be tempted to try and put it on lines 23 to 35 but don't - it comes off on line 21.

The NICE part about this is that it gives your wife the lower joint tax rate without having to include your income in the marginal tax rate.

Article XIX follows in this older but similar question.
----------------------------
My_question_is: Applicable to both US and Canada
Subject: Canadian Government Employee living in US, working in Canada
Expert: [email protected]
Date: Tuesday January 30, 2007
Time: 03:11 PM -0500

QUESTION:

I am a Canadian government employee who works in Canada. I am applying for permanent resident status in the US, and will be moving there shortly. I was wondering what me tax obligations would be to either countries. I was told that as a government employee, I would not have to pay the US tax since my income comes from the Canadian government and the US has a tax treaty with Canada stating that each other cannot collect tax from the governments of the other country. I would like to know all the information before I make my move. I do not own any property or investments in Canada, but I plan on keeping a Canadian bank account, as that is where my paycheque will go. I will have to cancel my health insurance and transfer my car over. Thanks you for any help on the situation.

-------------------------------
david ingram replies:

Article XIX of the US/Canada Income Tax Treaty exempts an employee of the Canadian Federal Government from paying tax to the US government on their government paycheque when the Canadian lives in the US for any reason and the same situation applies in reverse.

For instance, a female US citizen working as a US border guard and living in BC Canada with her Canadian husband and three Canadian born children does NOT pay one cent of tax to Canada on her US Homeland Security income. She qualifies for BC Medical and will even qualify for a Canadian old age pension at 65 but does not pay tax on her US government income. However, any interest, dividends, capital gains or rentals or author's royalties ARE taxed by Canada.
---------------------
This is the actual treaty article

Article XIX - Government Service


Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, the provisions of Article XIV (Independent Personal Services), XV (Dependent Personal Services) or XVI (Artistes and Athletes), as the case may be, shall apply, and the preceding sentence shall not apply, to remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State or a political subdivision or local authority thereof

My_question_is: Applicable to Another Jurisdiction or Multi-jurisdictions
Subject: Moving overseas
Expert: [email protected]
Date: Tuesday February 20, 2007
Time: 01:27 PM -0500

QUESTION:

Hello,

We currently have our primary residence in Ontario, have a rental property
in California and likely to move to Australia within 6 months. We moved back
to Canada not too long ago after many years away.

What would you advice we do to minimise taxes all round ? E.g. (1) Would it
be a good idea to rent our house in Canada instead of selling it ? We have
not decided where or when we'll be retiring.(2) Keep or sell the rental
property in California ?

Would appreciate any advice you may have for us. Thanks in anticipation.

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

I just hung up from talking to a lady client who had moved back into their
Vancouver Condo after stints in two other cities. When she left she really
wanted to sell the condo and I talked her out of it.

She was quite happy to move back in with its value doubled. If she had sold
Vancouver and bought in the other places, she could not have afforded the
buy back in Vancouver.

Tax should be the least of your worries. You should be keeping both of your
houses unless you absolutely need the money for your Australian venture. If
the intent is to stay in Australia, then you should be buying there sooner
rather than later.

I would suggest that over time, the Ontario property will not do as well as
the California property but it really depends upon "where" in Ontario and
"where" in California.

As an example A Harbour Castle Condo On the water at the foot of Yonge
Street) in Toronto will almost certainly do better than a Riverside condo in
California.

If you can keep them both, keep them both. In the long run they will
appreciate and if you do decide to return to either place, there is a home
waiting for you at today's cost.

You will keep on filing 1040NR and 540NR returns for California and a
Section 216(4) rental return for Canada.

Minimizing taxes is not the aim - preservation of capital and future worth
is / should be the goal.

Subject: Canada condo mortage deductable?


Hi David,

Hope you're doing well and enjoying the busy season!

I am sure that you've probably addressed this question in one of your past emails, but I can't find it anywhere. My wife and I are now both US citizens (still Canadian too). We live in the US in both a rented apartment and part-time on our sailboat. We're thinking of buying a condo in Toronto to spend a few months of the year - maybe 3 or 4 months maximum. The rest of the time we would live on our boat here in the US. If we got a mortage on the condo in Canada, would the interest be tax deductible here in the US?

Thanks - all the best!


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

david ingram replies:

If you spend 3 or 4 months in Canada at your condo and live on the sailboat 3 or 4 months and spend 3 or 4 months "on the road" as a performer, and the CRA becomes aware of the situation, Canada will feel it has every right to tax you on your world income unless your sailboat is worth two or three times what you paid for your Toronto condo. Canada will say you are LIVING in Toronto and vacationing on your sailboat which is essentially what you are doing now I would expect with an apartment you live in and vacationing on your sailboat.

Nobody, well almost Nobody, buys a Toronto Condo as a vacation home unless they are richer than Midas..

But the answer to your question is that the interest and property taxes on the Toronto condo will be deductible on US Schedule A.

I think you likely need another phone consultation refresher.

QUESTION: Hi David,

As per your November 2001 CENTA newsletter my husband and I are going to
deduct interest on accumulated rental expenses on our two rental properties,
one of which I own and the other that he owned prior to our marriage. As
well we wish to borrow money to invest in real estate and well as other
ventures together. I share a line of credit with my husband that we will use
solely for investment purposes. My question is how should we allocate the
tax deductible interest expenses between the both of us when we do our
seperate tax returns since there is only one line of credit. Are we better
off splitting up the line of credit into two accounts or can we allocate the
deductions between the both of us in some kind of manner?

Thanks,
ccccccccc

---------------------------------------------------------------------------
david ingram replies:

You should likely get a Manulife Line of Credit which can be divided into 5
separate expense portions. That solves the question in two ways because you
can apportion your share and his share and keep them properly segregated.
If you do not do this, I suggest two lines of credit. One for yourself and
one for your husband. If the bank is unhappy for some reason, you can
cop-sign each other's loan. For MANULIFE information, call Stuart Rodger at
(604) 351-6133.

QUESTION:

Can you provide me with a list of accountants that can provide us with both US and Canadian tax filing
_____________________________________
Besides me you ask?

Steve Peters - Halifax (902) 492-6011
Gary Gauvin - Dallas, Texas (469) 273-3399
Kevyn Nightingale - Toronto (416) 733-9595
David Holroyd - North Vancouver (604) 980-0321 - my office
Brad Howland - Victoria (250) 598-6258
Len Vandenberg Kelowna (250) 763-7600

I have never met Steve Peters, Kevyn Nightingale or Len Vandenberg. Gary is my old partner in an Ottawa office. I have met Brad once in Victoria. David Holroyd works in my office with Gillian Bryan and George Arora and myself and we all do US Canada tax returns.