geedee

I have done a search but couldn't find the answer....!

In a nutshell, there's a possibility of us being transferred abroad. It's all happened at short notice, and we're not likely to sell our house before we go (if we go).

I've looked over at the Canadian Government Tax site, and the rules are not too clear, but it seems to me that if we have a house in Canada, we will be deemed resident for tax purposes.

Giving up medicare cards, driving licenses etc. will be easy enough, but our PR will still be valid and our house unsold (for a while at least).

Does anyone have any experience of this or any advice?

Steve_

Have a read of NR-73. Having a house in Canada is only one tie to Canada, it's not necessarily the determining factor but having a house and being LPRs does weigh quite heavily towards the resident side of the column.

Individual circumstances vary, I think you'll get a better answer asking the CRA directly.

If you've been in Canada at least five years, you'll also be subject to departure tax so if this is temporary overseas posting, it may be better to remain resident for tax purposes in Canada.

Novocastrian

No expert (where's Jonboy?) but as I understand it departure tax only applies to capital gains made on foreign property or shares etc. that you held when you first entered Canada. Not on a house you bought here afterwards.

geedee

Thank you for replying, Steve and Novo.

I think it might be worth finding a tax expert and talking things through. The accountant I've used before did annual returns, and that was about it!

First I've heard of a "Departure Tax"

They seem to tax breathing over here! I nearly fell off my chair when we bought the house and saw the size of the "Welcome Tax" bill!

Steve_

I didn't mean that it was, I was talking generally about departure tax. Your principal residence is exempt and so are RRSPs, however most capital assets are subject to it, not just stuff you held when you first entered Canada.

This is the info on departure tax: http://www.cra-arc.gc.ca/tx/nnrsdnts...spstn-eng.html

About the house though, if you leave and it ceases to be your principal residence, then it will be subject to capital gains tax from that point forward for Canadian purposes and possibly from the point you bought it, depending on how capital gains tax works wherever you are moving to.

One thing that catches a lot of people out is the adjusted cost base of their investment in Canada, which is why the US-Canada tax treaty was amended. I.e. you pay the departure tax, so you think you've paid the capital gain - but the destination country where you go to assesses their capital gains tax from the date you acquired the asset. So you get taxed twice. It is possible to avoid this problem if you're moving to the US as there is a tax treaty provision that addresses it but that is not the case elsewhere.

JonboyE

The CRA are reluctant to let you go. To become non-resident you have to sever residential ties with Canada. If you keep a house here that is available for your, or your family's, use then they will almost certainly determine that you have not severed residential ties and so will remain tax-resident in Canada. If you rent your house out on a standard residential tenancy agreement to someone you deal with at arm's length then this is no longer considered a residential tie.

Does the country you are moving to have a tax treaty with Canada? If so, look at the tie-breaker rules regarding residency. In a tax treaty situation you could be deemed non-resident if you meet the residency rules in the other country. Alternately, you may be deemed non-resident in the foreign country.

Also consider the effect of maintaining your PR status. If you have to come back to Canada to maintain your status the CRA may argue that you never really severed residential ties in the first place.

It is difficult to give confident answers because each decision is based on the particular facts of the case.

The departure tax is a nick name for the deemed disposition on emigration rules. Essentially you are deemed to have sold and repurchased all of your capital assets on the day you emigrate. This deemed sale triggers any capital gains in the assets and these gains become taxable in the year of departure.

There are a number of exceptions to the deemed disposition rules:

Canadian real property, Canadian resource property, and timber resource property (see the note below);

Canadian business property (including inventory) if the business is carried on through a permanent establishment in Canada (see the note below);

pensions and similar rights including registered retirement savings plans (RRSP), registered retirement income funds (RRIF), registered education savings plans (RESP), registered disability savings plans (RDSP), tax-free savings accounts (TFSA), and deferred profit-sharing plans (DPSP);

rights to certain benefits under employee profit-sharing plans, employee benefit plans, employee life and health trusts, and salary deferral arrangements;

certain rights or interests in a trust;

property you owned when you last became a resident of Canada, or property you inherited after you last became a resident of Canada, if you were a resident of Canada for 60 months or less during the 10-year period before you emigrated;

employee security options subject to Canadian tax; and

interests in life insurance policies in Canada (other than segregated fund policies).


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

Note that even if your capital properties are exempt from the departure tax you still have to report them on form T1161.

geedee

Thanks again Steve, and many thanks JonBoy.

As to "capital gains" I doubt there will be any.... if we go, I intend to drop the price of our house to a figure that will probably not make a profit!

My main concern is that I might have to pay tax on income earned abroad... that will be a sickener as where I might be going income tax is only 15%.... even though there's a "Tax Treaty" I am assuming I will have to pay the balance (the difference between tax there and tax here) to Canada. That will just not make it worth doing!

Thanks again.

laser558

An interesting reply from JonboyE. I am in a similar position and will be enforced to leave Canada in November but have every intention of retaining my house here and hopefully, retaining residency. However, you could argue that I have never broken my ties with the UK as I retain property over there too. I would have thought that if you are in Canada for six months or less, then you should be deemed resident in the country where you reside most. I mean, you can own property in Canada and live here for potentially six months of the year without being a resident or tax resident. I also thought that you could retain PR status, provided you have spent 730 days over a five year period in Canada. So, although not a resident for tax purposes, you can still claim PR. It must be a grey area and something I'm not qualified to comment on really but just my thoughts.

JonboyE

Article 4 2(a) of the (UK/Canada) tax treaty states:

he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

The CRA interpret "permanent home" as a dwelling place available for use on a day to day basis.

If you own homes in both countries you are considered to be tax resident in the country that is the center of your personal and economic interests. This is a vague concept and very much dependent on individual circumstances. If, say, you own property in both the UK and Canada, split your time between them and have bank accounts in both countries then you need to look at the bank transactions. From which account do you pay things that are the meat and potatoes of living: life assurance premiums, club memberships, professional subscriptions, magazines and periodicals? Into which country's account is your income paid? In both the UK and Canada "free at the point of use" medical treatment is only available to residents so which country you expect to receive it from is highly relevant.

I know of people who maintain PR status but are non-resident for tax purposes. They never moved to live in Canada at any point but visit for 150 days each year. They spend the remainder for the year in a (low tax/non-tax treaty) foreign country where they are tax-resident. It does not leave much wiggle room, especially if you become ill, but it appears that it can be done.

I also know of people who have immigrated to Canada and whose family live here in a permanent home but who remain non-resident for tax purposes because they still own a home in their original country and their business and professional lives are still in that country.

However, these are very unusual circumstances.

geedee

There's a lot to think about and it all seems a bit grey!

It's time to phone them up and talk things through with them... and hope they haven't changed their minds when we come back!

Thanks again.

Steve_

Yes you can argue, I suggest anyone in this situation read the relevant tax treaty as the residency rules differ per treaty.

HMRC, IRS, CRA etc. all have their own ways of determining residency, the CRA use form NR-73 (or NR-74 as the case may be) - I make the point here that it's a good idea to read NR-73 but you shouldn't file it unless the CRA are adamant that you have to file it and are saying you are resident otherwise. If you file it, then they have it in writing from you and they can use it against you.

Being a permanent resident and having a house in Canada though, as I said originally, weigh heavily in the residency column.

It usually boils down to how much stuff you have that only a resident could have, e.g. driver's licence, healthcare, etc.

Aviator

Would not rely on phoning.To play it safe, you should write and ask for a determination, this way you have it in writing one way or the other. If they come back to you in 5 years and demand tax after you move back to Canada, it would be best not to rely on mentioning a phone call. Keep the letter once you have it, in a safe place.

One can argue all you like with the tax authorities, however it is up to you as the tax payer to prove your situation or whether you don't owe tax, not the tax authority to prove you do. They say you owe tax, you cannot prove otherwise, they want the tax.

geedee

Good point, and thanks very much.

laser558

Yes, the healthcare I agree with but you could quite easily have a house and driver's licence over here and not be a resident or a resident for tax purposes. You can only drive on a UK licence for three months for example. If you stayed any longer you would be forced to get, in my cae, a NS licence.

Steve_

Well I agree (to a point - you may still have the DL but you can't renew it if you aren't resident), but whether I agree or you agree isn't the point, it's whether the CRA agree and as JohnBoy commented, they are reluctant to let you go. I would go further than that and say imx the CRA always work things out to their advantage. Whatever enables them to not pay a refund or get more money out of you is usually their default position. Having a Canadian DL does not help on the residency question, like I said read NR-73.