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It's
difficult to obtain
non-resident tax
status in Canada
since the definition
of residence is
much wider than
that existing in
many other countries.
For example:
Under
Canadian law everyone
must be tax resident
somewhere. A Canadian
who claims to
have given up
his Canadian residence
but cannot prove
residence in another
country for tax
purposes is deemed
to have retained
his Canadian residence
for fiscal purposes.
Whilst in some
jurisdictions
such as the UK
"ordinarily
resident"
and "resident"
are distinct terms
which occasionally
overlap, in Canada
a person who is
"ordinarily
resident" is automatically
resident under
section 250 of
the Income Tax
Act. Thus in Regina
V Reeder 1975
it was held that
a person who was
born and resided
in Canada until
1972 but who subsequently
went abroad to
work for a few
years was "ordinarily
resident"
in Canada in that
he "regularly,
normally or customarily"
lived in Canada
and therefore
automatically
resident. In other
words having a
habitual home
in Canada makes
a person ordinarily
resident and therefore
automatically
"resident".
This rule has
led to a much
more aggressive
assessment of
Canadian nationals
transferred abroad.
A
foreigner becomes
resident in Canada
for tax purposes
if he stays more
than 183 days
in the jurisdiction
within any tax
year.
There
must be some permanence
to losing your
Canadian residence.
This permanence
is more akin to
surrendering your
"domicile"
under UK tax law.
(For fiscal purposes
the concept of
domicile does
not exist in Canada).
Loss of Canadian
residence almost
indicates never
intending to return
to Canada. A Canadian
resident is deemed
non-resident from
the date of his
departure if he
can show he "severed
all residential
ties with his
country".
The
maintenance of
a physical dwelling
(or even a short-term
rental lease for
year round occupancy)
indicates the
retention of residency.
If
the applicant's
spouse and dependants
remain in Canada
this would indicate
that the applicant
intended to return
to his country
with the consequence
that he is not
deemed to have
given up his Canadian
residence.
If the applicant
is not going to
be returning to
Canada presumably
he would sell
or transfer abroad
all his furniture
(as opposed to
putting it into
cold storage),
close all his
Canadian bank
accounts (other
than non resident
bank accounts),
exchange his Canadian
drivers license
for a driving
license in his
new country of
residence, sell
his Canadian car
and boat, resign
all his club and
professional memberships
and cancel his
Canadian life
and medical insurance
since if he is
genuinely not
going to return
he would not need
want to retain
any of these links.
Thus the maintenance
of a postal address
and telephone
listing in Canada
may together with
other factors
be fatal to an
application to
be deemed non-resident.
If
the return visits
are regular and
lengthy such that
it can be shown
that he has not
developed strong
ties abroad then
this may assist
a finding that
he has retained
his links with
Canada and is
therefore resident.
With
a view to deterring
tax exiles, the
CRA imposes a departure
tax on individuals
or corporate entities
seeking to change
residence. Individuals
who have been resident
in Canada for less
than 5 years are
exempt from departure
tax. Under the departure
tax all the individual's
capital assets are
deemed sold at a
fair market value
on which capital
gains tax is payable.
Non-residents
pay tax income tax
in respect of certain
categories of Canadian
source income at
the same rates as
Canadian citizens.
Included in the
notion of Canadian
source income are:
Income
derived from an
employment in
Canada;
Income
derived from the
carrying out of
a business in
Canada;
Gains
derived from the
sale of capital
assets in Canada.
Certain
double taxation
treaties may reduce
the amount of income
tax that a non-resident
pays on employment
activity in Canada.
Canadian
source items of
income paid to a
non-resident individual
such as loan interest,
rents, royalties
and dividends are
subject to a withholding
tax deducted at
source prior to
remittance. If however
a double taxation
treaty is in place
with the country
in which these individuals
reside then the
withholding tax
rate can drop significantly.
This is unlikely
to be the case if
residence has been
established in a
low-tax jurisdiction.
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