You have left Canada to work in another country that does not have a tax treaty with Canada. You have a wife who is seeking Canadian citizenship and must remain in Canada for a few years more to obtain citizenship.
How do you become a non-resident of Canada for tax purposes to achieve your goal?
A recent visitor to Canadian Tax Resource posed such a question. I have included the original e-mail (excluding personally identifiable information).
My situation seems complicated (on top of which I know very little about taxes). Here is some data:
- I am a Canadian citizen and a resident of Ontario.
- As of August 2008 I have been working abroad in a country with low taxes and no tax treaty with Canada.
- My wife and my 15 month son are living with me abroad.
- My wife is a landed immigrant and currently needs and must live in Canada for another year and a half in order to obtain citizenship.
- We receive child tax benefits.
- My wife and I are taking distance education university courses from a Canadian university and I have an OSAP student loan.
- My wife has a Spousal RRSP that I have contributed to.
- We do not own a home in Canada but are renting a portion of my parents home.
I would like to become a non-resident and thus avoid paying Canadian taxes. However, I need my wife to get her Canadian citizenship for which she will have to live in Canada (without me) for about 1.5 years sometime within the next 4 years before her permanent resident card expires.
How can I accomplish both my wife’s citizenship and non-residency?
I understand I can apply for non-residency later (i.e. after my wife gets her citizenship), and the status is back-dated to when I left Canada….but can they or how can they find out if my wife was actually living in Canada for the 1.5 year to get her citizenship? (which I assume would significantly hurt my non-residency bid).
- Does having an RRSP hurt my chances of non-residency?
- Does getting child tax benefit hurt my chances of non-residency?
- Does having an OSAP loan hurt my chances of non-residency?
- Does taking a distance university degree (either me or my wife) hurt my chances of non-residency?
If I were to purchase a house in Canada in the future (after my wife gets her citizenship), would it be advantageous to first declare non-residency then purchase the house OR vice versa? How would either scenario affect my chances of non-residency?
Thanks in advance for reading this…as you can tell, I really need help.
Analysis
The issue of immigration is outside my scope of taxation and requires the input from an immigration attorney. Below outlines the general rules associated with the tax implications of emigrating from Canada.
Determining Residency
The CRA has an Interpretation Bulletin (IT-221R3) on this matter that may referred to directly. According to the CRA, the most important factor in determining residency for tax purposes is whether or not the individual maintains residential ties with Canada while abroad. The residential ties considered most significant are the existent of:
- A residential dwelling in Canada whether owned or leased. However, if the property were rented to an arms length party the dwelling would not generally be considered a residential tie but the CRA would look at the other facts in the circumstances to determine residency.
- A spouse or common law partner in Canada. If a spouse or common law partner remains in Canada then this would result in a significant residential tie.
- Dependents remain in Canada. If the individuals’ dependents remain in Canada while the individual is abroad, then this would be considered a significant residential tie to Canada.
Note that even if the above have been met in terms of severing residency that there is no dwelling in Canada and the spouse and dependent have left with the individual, other, secondary factors may be considered to determine residency.
Secondary are viewed as a whole to determine if any one tie is significant. The existence of a single secondary residential tie would not normally result in residency for tax purposes but taken with other ties may result in residency in fact. Such secondary ties include:
- personal property in Canada (such as furniture, clothing, automobiles and recreational vehicles),
- social ties with Canada (such as memberships in Canadian recreational and religious organizations),
- economic ties with Canada (such as employment with a Canadian employer and active involvement in a Canadian business, and Canadian bank accounts, retirement savings plans, credit cards, and securities accounts),
- landed immigrant status or appropriate work permits in Canada,
- hospitalization and medical insurance coverage from a province or territory of Canada,
- a driver’s license from a province or territory of Canada,
- a vehicle registered in a province or territory of Canada,
- a seasonal dwelling place in Canada or a leased dwelling place referred to in ¶ 6,
- a Canadian passport, and
- memberships in Canadian unions or professional organizations.
Other factors may also be considered in some circumstances. These can include magazine subscriptions or safe deposit boxes.
The CRA will also consider the regularity with which the individual visits Canada. Occasional visits are typically not considered but if the visits are more than occasional and secondary residential ties are maintained then this may result in residency for tax purposes.
It is advisable to get a determination from the CRA on residential status when leaving Canada. This may be obtained from the International Tax Services Office.
Consequences of Severing Residency
The rules for a deemed disposition upon emigration from Canada can be complex and professional advice is strongly recommended.
Generally, on the date residency is officially severed and the individual has left Canada all accrued tax liabilities must be brought up to date. In technical terms this is called a deemed disposition and all of your assets are deemed to have been sold immediately before you left Canada. All accrued income and gains are realized and taxes must be paid upon departure.
Note that certain types of property are exempt from this deemed disposition and include such things as real property situated in Canada and pensions, stock options, RRSPs, and rights in a trust.
The issue with a deemed disposition is that there is no factual sale of property and a hefty tax bill may result with no real cash inflow. The ITA thus allows a taxpayer to provide security in lieu of paying the resulting tax.
Re-Establishing Residency In Future
It is possible to unwind the deemed disposition if at a later date the individual returns to Canada and establishes residency. The tax that was paid would be refunded and the adjusted cost base restored.
Conclusion
Since the wife wishes to obtain Canadian citizenship and must reside in Canada for the next 1.5 years it would appear that the individual will not be able to sever residency until after citizenship has been obtained.
Once the wife has obtained citizenship she and the dependent children would need to leave Canada to reside with the Husband abroad. In addition, it would not be advisable to purchase a home in Canada unless the intent was to rent the property to a third party who was at arms length. Thus you would not be able to purchase a home and have your parents rent the property from you.
On their own, the RRSP, the OSAP loan, the distance education courses, and paying your parents rent do not necessarily result in residency. However, taken together may result in residency. It is advisable to present all of the fact to the CRA to obtain a ruling on residency.
Finally, be aware that upon departure or severing residency there will be a deemed disposition and any accrued taxes must be paid or security provided. Severing residency would also result in a loss of the child tax benefit and you would no longer be eligible for Canada Student Loans or OSAP.
Related Articles
- Non-Resident Owing Canadian Taxes
- TFSA & Non-Resident Withholding Taxes
- Living Abroad And Becoming a Non-Resident
- Tax Implications For Canadian Marrying Foreigner And Residing Abroad
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Dear Sir / Madam,
I am a Canadian citizen and my wife and our 12 year son are citizen also. My wife and son have leaved Canada for about 4 years ago and stay in another country.
I do fill my tax form every year and also for my wife. I consider her as zero income.
During these 4 years we received Child Tax Benefit because we did not know that we should inform if my wife and my son are not living in Canada.
Recently we advised by friend that we had to inform CCTB office about their absence.
So my question is, since I do not want to do any illegal action, what should I do know in order to stop receiving CCTB.
Please let me have your reply in my email.
Regards,
Masoud
Contact the Canada Revenue Agency http://www.cra-arc.gc.ca/cntct/phn-eng.html
Contact either the Individual income tax inquires line if you are in Canada or the International Tax Services Office if you reside outside of Canada.
I married a US citizen in 2009. He became a perm res in 2010, however he never lived here in canada for greater then 180 days in either year – will he be deemed a resident for tax purposes in those years?
I am moving to the us in 2011, I am keeping my house in Canada. I will likely be deemed a resident for tax purposes, therefore I will be taxable on my worldwide income, however will the foreign tax credits eliminate the that tax effect – making it a wash?
I can’t really answer your question except to say that he will need to establish whether he was a resident of Canada for 2009, 2010 and 2011. You’ll have to establish whether you are a US filer.
Even if you have to pay tax in both countries, you may have to establish where the closer connection lies and then you pay tax in that jurisdiction.
You should seek professional help.
I’m living with my wife and kids abroad for almost last 2 years and visited canada during this period only once for 2 weeks.
I have home in Ontario rented and managed by Property managment company.
I have bank account in Canada, driver license and canadian passport.
I have not declare my non-residency yet and have not filed income tax for last two years.
Is it advisable to declare the non-residency now? Is there any problem I would face in non-residency declaration? Is there any other thing I should do before declaring non-residency? Please advice.
Whether you are a resident of Canada is a question of fact: You either are or are not a resident of Canada. There is no “declaration.”
Take a look at Living Abroad And Becoming A Non-Resident as well as the comments by Cross Border tax on that page.
Hello,
If I get employment in a country that doesn’t have tax treaty with Canada and I become non resident on e.g Aug 2009. I have Canadian income for 8 months (Jan-Aug). Do I have to report foreign income of the remaining four months (Sept – Dec) of the year when I file the tax return for 2009?
The date you cease to be a resident of Canada, you will be considered to have sold all of your worldwide assets at FMV (excluding certain property). You pay tax up to that date and no longer.
Hello,
I am rephrasing my question that I asked before. Please let me know if I am correct or not.
If I get employment in a country that doesn’t have tax treaty with Canada and I become non resident on e.g Aug 2009. I have Canadian income for 8 months (Jan-Aug) and 4 months (sept-dec)foreign employment income after moving from Canada. Because I live in Canada for 2009 tax year more than 183 days therefore for the 2009 tax year, I have to report Canadian and foreign income. I read some where that before moving from Canada, if you lived more than 183 days in a tax year, you will be considered resident for that year only so I need to report my Canadian and foreign employment income both. Is it correct?
My answer is still the same. Assuming you ceased to be a resident in August 2009, you would only be liable for Canadian income tax one worldwide income up to the point to ceased to be a resident.
The 183 day rule applies to people who are not already factual residents. If you were a factual resident before August, then the 183 rule does not apply.
Hello,
Thanks for your reply.
You mentioned following in one of your answers to someone:
“you should either be filing a return annually declaring and paying tax on your net rental income only or your tenant should be withholding and remitting 25% of the rental income to the CRA (Option 1 is probably better).”
Could you please tell me what is the procedure of reporting net rental income if you choose option 1 above? Who would do NR4, NR6 etc?
Thanks
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