Tax Tips

Could you repeat the question?

Government is always telling us to be aware of giving out our personal information  but then taking great pains to extract every last iota of information from us whether it is relevant or not. Let's take a look at the tax filing form. Over the years they have reduced the amount of information you have to repeat. Like what is your date of birth? Pretty well the same as it was last year? Yup. Last year I was born in the same year as this year, give or take. But how about the one about property you may hold outside of the country. You know, the question about owning assets worth more than $100,000 outside of Canada during the tax year. According to the Income Tax Act we all have to report the amount of our worldwide income. Therefore in our filings we will have include the amount earned by all of our assets irrespective of where they are located. So if I had five million bucks outside of the country and I earned 10 percent on it I would report $500,000 in my filing as part of my income. Does it matter that the $500,000 was earned on my Rangoon, Saigon or Hong Kong assets? No. What matters is that I declare the income and pay the required tax. If I have done that then what can possibly affect my tax payable by answering the question about where my assets are located? If I say 'No" my taxable income doesn't  change. If I say "Yes" my taxable income doesn't change. I always answer that question with 'N/A', 'Not Applicable' as answering the question does not affect my tax payable. I can't be accused of filing an incomplete form as all my income has been exposed and I have answered the not applicable question for what it is - meaningless.

There are however, more dangerous questions asked by the folks at CRA and if you  are thinking of going non-resident you should take care. On the NR 73 form that is used by CRA to give an immediate resolution of your residency status for tax purposes there is the following innocent looking question, "Are you subject to income tax in that country on your worldwide income?" This refers to your new country of residence. Look what a client of mine received from CRA after moving to Dubai, which has no personal income tax.

"A review of your previous Form NR73 indicated that you are not subject to income in your world income in that country. Therefore we consider you to be a factual resident while you are abroad."

So CRA considers the individual a resident of Canada for tax purposes while he has  left Canada, has no ties of any sort, but because he is not taxable in his new country  of residence. That raises some interesting questions. As a resident of Canada, living in Dubai, is he entitled to coverage under the National Health Act? However, he has no provincial residency so he can't have coverage. Also will the government of Canada  pay to have his children educated? What if a Canadian moves to a jurisdiction that only collects consumption based taxes although those may be in excess of what might  have been paid in income tax? What if Dubai imposes a one percent income tax on all incomes over $100 billion a year? Will that suffice? What if he is only taxable on his local earnings? Or taxable only on his foreign income? So if my client never sets foot in Canada again, CRA is going to expect a tax form every year?

This is one of the stupidest moves on the part of CRA I have ever seen. What are the remedies? Before moving to Dubai take the effort to become resident in some jurisdiction with worldwide tax legislation then move on to Dubai. CRA's rule is that you are  resident where you last resided if you become stateless. So you become a resident of Ireland, the USA or some such country and then leave for Dubai without ever taking  up formal residency in Dubai. As well, CRA has a rule that says if you have been  out of Canada for two years you are de facto a non-resident. So don't file an NR  73. Stay away and each year for two years inform CRA that you are non-resident in Canada and hence non-taxable. They will send you an NR 73 and you will reply with the old 'Not Applicable' as you have been out of the country and don't need one -  thanks anyway.

I've heard a rumour that CRA is considering not allowing Canadians to be resident  for tax purposes in countries that behead rapists and murders but that is probably still in the review stage.

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