websheep

Hi folks,

This is a complicated one. I'm a PR in Canada but I will be out of the country for the next 2 years - but want to return after that. Ie. I don't want to lose my PR but is there a way to become non-resident for tax purposes? I do not have any property, rent or liabilities in Canada but I do still have my bank account.

Any advice is appreciated. Thanks!!

lmartin999

I can't speak to the implications for PR as I was a citizen, but you can fill in this form when you leave or have left Canada:

http://www.cra-arc.gc.ca/E/pbg/tf/nr73/README.html

I don't think it is essential to do so and simply not being resident may be enough. I did it when I left as I felt having something in writing was better. At that time I severed all major ties, though maintained a bank account and credit card which was not a problem. The form allows you to explain any remaining ties etc.

I received a letter confirming my non-resident status in due course.

Alan2005

Tax residency is independent of residency for PR purposes. JonboyE will know this for sure, but if you leave for 2 years you will not be tax resident in Canada, but you will keep your PR status (assuming you stay in the 2/5 rule)

Aviator

If you use your bank account it may still be enough to keep you as a tax resident though.

Alan2005

You mean if I decided to leave canada tomorrow and left $500 in a bank account and came on holiday and used it I'd be deemed a tax resident? You sure about that?

lmartin999

No. This is exactly the reason I gave on the form for maintaining a bank account and credit card when I left. However, it is at the discretion of the CRA to determine whether the account does constitute a significant tie. I guess there could be a situation (perhaps where there is a large balance left or lots of activity) where this could be the case.

Aviator

It would be more regular use, such as money coming and going on a regular basis. One time use is unlikley to make a difference, but then with CRA you never know. Even when asking for an interpretation, a lot depends on the agent handling it. In a recent case I have dealt with I got 5 different answer from 5 different agents (none of them were the answer I wanted though!)

JonboyE

First I would ask what you are trying to achieve by going non-resident, and if it is worth the effort. Let's assume it is.

We have discussed this in the past and I suggested that it is very difficult to be non-resident for tax purposes and still maintain PR. JAJ pointed out a case where this is not true if you lived abroad with a Canadian citizen.

A bank account can be seen as an indicator of residential ties. It depends on the transactions that go through the account. For example, I have bank accounts in the UK and Canada. My UK account is dormant most of the year but gets a few deposits around Christmas and Birthday times. In contrast I regularly transfer money from my business account to my personal account in Canada, and from my personal account I pay my mortgage, household bills, life assurance, credit cards and so on. My bank accounts clearly show that I am resident in Canada, not the UK. So, keeping a bank account in Canada will not necessarily put you offside. (But see below.)

You will need to cancel your membership of your provincial health insurance plan and give up your drivers license (or exchange it for a license in the jurisdiction where you become resident). If you don't have any immediate family (spouse and rugrats) in Canada and no one is maintaining a home for you here then you should be OK to claim non-resident status for tax purposes.

You can ask for a written determination from the CRA that you are non-resident for tax purposes and will likely be given it. Note however that the determination is given based on a specific set of facts at a given time. To become non-resident for tax purposes you have to sever residential ties with Canada. To all intents and purposes this will appear to be a permanent move. You become settled, ordinarily resident and tax resident elsewhere.

Of course, circumstances change and people change their minds. Returning to live in Canada after becoming non-resident does not necessarily invalidate a person's non-resident status in the interim. However, if that return was foreseen at the time of departure the CRA are entitled to give much more weight to factors other than home and family in determining your residential status.

I think (and it is just an opinion) that if you return in sufficient time to maintain your PR the CRA could decide that you foresaw your return at the time of departure and in this case the bank account will likely be considered a residential tie and your non-resident status revoked.

That said, keep your tax affairs squeaky clean and pay all your taxes and file all your returns on time both before you go abroad and after your return. Pay tax on any taxable capital gains when you leave. Fly under the CRA's radar as best as possible and do nothing to excite their interest. It will probably not be an issue.

Alan2005

Ah, that's different to the UK. When I did my posting in asia, I knew it was for a short time, but because i was going to be away for a full tax year I was told I wasn't resident for tax purposes (according to deloitte who did my returns).

On a different note, one of the people I know here started filing canadian returns as soon as they became PR even though they weren't resident. He was told by an accountant that there are some advantages to doing this. Something about accumulated RSP contribs or something.

JonboyE

Yes, length of time outside of Canada is just one of many factors considered.

The only way to acquire RRSP contribution room is to file tax returns with earned income. Filing a tax return as a tax resident before you actually become tax resident seems wrong in a kind of way I can't quite put my finger on.

Alan2005

I'm not sure of the details. I'll ask him.

Steve_

Canada is not like the US in this regard, you can be an LPR of Canada and non-resident for tax purposes, the two are not tied together, not in terms of caselaw at least although don't be surprised if the CRA tries to count LPR status as a residential tie. As long as you sever residential ties (i.e. things only a resident could have, such as a DL, healthcare card, declare on your T1 what date you left, etc.) then you should be okay. Remember also to tell the bank you are non-resident, so they send you an NR4 instead of a T5.

However, you must comply with the LPR requirements to remain an LPR, i.e. physically present in Canada for two years out of five.

Steve_

No it won't, plenty of people who are non-resident have Canadian bank accounts, I had one for many years before I became resident in Canada.

Steve_

If you have an RRSP you have to be careful if you leave, because it is not recognized outside of Canada as a tax shelter, except in the US. There is a specific provision in the US-Canada tax treaty that recognizes RRSPs, however you must file an 8891 with your 1040 so that the IRS is aware of what that asset is.

An RRSP is not a pension as described in some other tax treaties, but an RPP is.

Two important taxes you should know about and how they work:

http://www.cra-arc.gc.ca/tx/nnrsdnts.../nnrs-eng.html

Look at the bit about Part XIII non-resident tax. The tories narrowed the scope of Part XIII tax but it still has implications for RRSPs and other investments. Tax treaties modify the actual rate to be paid;

Also beware of departure tax: http://www.cra-arc.gc.ca/tx/nnrsdnts...spstn-eng.html

This is a tax that I think is unique to Canada, i.e. if you leave everything is deemed to have been disposed of at that point and becomes subject to capital gains tax (with certain exceptions).

This is one that I often see people get tripped up on. If you only have a house and a car and an RRSP for example, it won't affect you - the house is exempt because it's your principal residence, the car has gone down in value, the RRSP is exempt.

However if you have non-registered accounts, you can get hit with capital gains tax. The one I've seen people trip up on the most often is if they have a CCPC with any money in it, a CCPC loses it's status if you become non-resident and reverts to being a regular corporation, so to remove the money involves a lot of income tax; to leave the money in the corporation involves a lot of capital gains tax because departure tax applies to the portion of the corporation you own.

JonboyE

Certainly necessary to give your bank your address outside the country as maintaining a mailing address within Canada could be construed as a residential tie.

However, under ITA S212(1)(b) there is no longer any Part XIII tax on interest paid to non-residents if the payer is dealing at arms length, so an NR4 is not required.