Hi David,
I have been visiting your website often. Well I have recently cleared PR to Canada and completed my stamping / landing last month. The problem in hand is that i am doing very well in Middle East and there are no taxes whatsoever. I plan to move to CANADA later next year permanently and intend to put in about a quarter of the year on the Middle Eastern projects which i have set up.
What is my tax exposure on the earnings in the Middle East, presuming an estimate net earnings of US$ 400k per annum (tour rotation will be about 4 months in a year )
I will stay in Canada from next year (9m/year) and monitor my projects in the Middle East. Can I claim rebate on any or all my expenses in Canada for the 9 months I would stay without a job as I will be busy monitoring the projects in UAE / Qatar etc.
Await your response.
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david ingram replies
This question was rejected originally. However, i spotted it while emptying the trash box. For those who are interested, you may remember that my email was down from about 9:44 last Saturday till about 1 PM on Monday. we had cleaned out Trash and cleaned everything up at that time. This morning, I emptied 38,792 emails out of the TRASH. these ones were ones that the system automatically sent to the TRASH. I also have to manually send another 100 to 200 a day which get past that original SPAM filter. Can anyone beat that for SPAM.
If you are a PR of Canada and in Canada for significant time in a year AND your other country is NOT a 'TAX TREATY WITH CANADA' country and you are NOT a National of that other country, you are taxable in Canada.
IF you were in (as an example) Indonesia for 195 days a year and in Ontario for 170 days a year, you would qualify for Ontario Medical but under Article IV of the Indonesia / Canada Income Tax Treaty, you would only be taxable in Indonesia on your world income and taxable in Canada on income earned in Canada.
As you have described yourself, you are taxable in Canada on your world income.
If you are self employed in that you have set up whatever it is you are doing and have employees, etc and do manage the projects from Canada, you are entitled to deduct any expenses you incur in the earning of the income.
If you are an engineer who works a month on and three months off for an employer and three other people have equal responsibilities and you have no office, no employees, and no business expenses over 'there' because your employer pays everything, no expenses would be deductible in Canada, even if you answer the phone a couple of times a week to discuss the project with your fellow employees.
However, since you talk about 'project(s)', I assume there is more than one situation you are dealing with and that would imply self-employment and the deduction of expenses. However, as the following case points out, an engineer with three separate 'clients' was ruled to be a part-time employee of each because of the terms -
In 1983, Jaroslav Verner fared very badly. The Tax Review Board turned down office in the home, entertainment, auto expenses and secretarial services for a self-employed engineer with three clients. The problem was that he carried out the work or most of it on the clients' premises. His office 'library' seemed to have little to do with his work as a hydraulic specialist. His '100%' business used Corvette was used mostly to drive back and forth to his clients' premises - i.e. back and forth to work. (if you lose the office in the home, you do not get auto expenses away from your office.)
In this case, the court acknowledged that the documentation for the expenses was meticulous (rare) but that the relationship between the expenses and actually earning income (i.e. necessary) was tenuous in the extreme. As the expenses in question were $8,996.70 in 1975 and $7,486.61 for 1976 and were finally turned down in 1983, (eight and seven years later), a case can easily be made for 'the wheels of justice move slowly' . On this case, the $16,500 o turned down expenses would amount to $6,500 of tax which after interest was applied would be about $14,000. (in my own case, $535,000 of tax worked out to $4,680,000 22 years later)
There is nothing new or old about the above case. Even though a professional engineer with a degree, Mr Verner was ruled to have three part time jobs without benefits. the reason would be that he did the work on the client's premises using their facilities and equipment. It is not unusual for a nurse in Vancouver to work two days a week at three different hospitals. Even though a professional and working at three places, he or she is a part-time employee and not entitled to expenses. When I was in the hospital in Penticton in 1999, one of my nurses was working that way for the Oliver, Penticton and Kelowna hospitals because she could not get a full time job in the Penticton Hospital where she lived.
If you decide that you 'are' self-employed, use Canadian form T2032 to get an idea of what you can deduct.
http://www.cra-arc.gc.ca/E/pbg/tf/t2032/t2032-07e.pdfNote that an office in the home must be a separate room or an extremely well-defined area.. The part of my home office where I do 90% of my work is NOT deductible BECAUSE it is in the living room and my kids and friends use the area when I am not working and sometimes when I am. As I answer this, my son and my daughter's boyfriend are using the WI (game system) five feet from me because I have the best TV in the house in this area.
Two of their friends slept on the couches in this room last night so it is a dual purpose room and the CRA does NOT allow home office deductions for dual purpose rooms. To be deductible in Canada, your home office must be your principal place of business and a decision making area. Keeping office records there is not justification for a home office unless it is your only place of business unless there is no privacy at the business location.
Therefore, if you had a downtown business with a private office and also had an office at home, the home office would not be deductible because it was an office of convenience rather than an office of necessity.
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SUGGESTED PRICE GUIDELINES - Aug 5, 2008
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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
--IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-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 between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com. If you forward this message, this disclaimer must be included." -
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