World wide income

[Nigel Mansell]

Here's the deal: I have a friend, who is a Canadian citizen but who has llved and worked legally in the USA for the past nine years or so. He is still a Canadian citizen. Is there anything stopping him from coming up to Canada for a couple of months each year, working, then filing a tax return the following year and getting a big refund? My theory goes like this:

he works in an industry where it is easy to get a job and make thirteen grand in about five weeks. Unfortunately, the government will hit him with huge taxes because he makes so much.

he returns to the USA after making the tax limit where you don't have to pay any at all in Canada (I believe the personal deduction limit is about 13k, but I could be wrong)

next year, he files a tax return in Canada and gets a large refund because although he made big money, it was for a short period of time and he'll stand to get most of the taxes paid back

Are there any legal concerns here? Is he required to inform the CRA and/or IRS of income earned while working abroad? Thanks very much for your help.

[spike98]

I have no hard facts but from what i can remember from my friend that lived in japan for 2 years is that you dont have to pay income tax on money earned abroad.

But dont take my word for it, get your friend to go to an accountant that actually knows the ins and outs of the CRA.

[Zhariak]

I could argue that.

I don't know much about anything... But apperently when you bring dough into Canada, and have your citizenship, I heard you get raped on taxes....

[dezmarez]

An individual who is a resident or deemed resident in Canada at any time in a taxation year may be subject to Canadian income tax on his taxable income (ITA 2(1)).

An individual is resident in Canada for tax purposes if Canada is the place where he, in the settled routine of his life, regularly, normally, or customarily lives.


If an individual is a resident or deemed resident of Canada for only part of the calendar year, he only has to report the worldwide income that he earned during that period of Canadian residency for Canadian tax purposes (ITA 114).

Sojourners
A sojourner is someone who is temporarily present in Canada. If a sojourner is in Canada for a total of 183 days or more in any calendar year, the individual is deemed by the Income Tax Act to have been resident in Canada for the entire year, even if he or she is technically a resident of another country at the time (ITA 250(1)(a)). As a deemed resident, he or she will have to report worldwide income for Canadian tax purposes. For those whose travels to Canada vary from year to year, it is possible to be a deemed resident one year, but not the next, depending on whether the individual meets the 183-day criterion for each particular year.

Note: Residency is not the same thing as citizenship. Citizenship refers to a national affiliation, not the place of residence. While Canada's tax system is based on residency, the tax systems in some other countries, such as the United States, are based on citizenship.

[dezmarez]

and to add, which is probaly your friends case...

Becoming a non-resident
An individual is resident in Canada for tax purposes if Canada is the place where he or she, in the settled routine of his or her life, regularly, normally or customarily lives. If an individual resides in another country, even for a significant amount of time, CRA will still consider that person a Canadian resident for tax purposes if he or she maintains sufficient residential ties in Canada in the form of a:

dwelling place
spouse or common-law partner
dependants
Where an individual has not severed all of his or her residential ties with Canada, but is physically absent for a several months or even years, CRA will consider factors such as intention to permanently sever residential ties, regularity and length of visits to Canada, and residential ties outside of Canada. No element is determinative in itself and CRA would decide on a case by case basis whether a person is resident in Canada for tax purposes while abroad.

If a Canadian citizen becomes a non-resident for tax purposes, the only income that he she will have to report for Canadian tax purposes will be the income that he or she earns from Canadian sources, such as employment income while working in Canada or capital gains realized on the sale of Canadian real estate. Once the individual is a non-resident, the rest of his or her world income will be beyond the reach of the Canadian tax system. This is attractive to some Canadians. However, upon becoming a non-resident, he or she will face a deemed disposition of capital property at fair market value and that could result in a significant tax liability on departure.

[davidI]

This stuff gets complicated and your friend should consult a tax accountant.

He probably should be paying tax in the country where he earned the income. Possibly, the company is paying the tax on his behalf but he should still be able to claim the foreign tax credit in Canada. If he's working in oil and gas or mining in certain capacitites he may also qualify for OETC where you're basically tax free up to $80k (heard it's now $100k but not sure). If he goes "non-resident" then he really needs to cut all ties with Canada in the eyes of the CRA. That means he needs a foreign address, bank account, and limited ties with canada including cars, homes, memberships...hell, the CRA will even look at magazine subscriptions.

Seriously, if he's really making that much coin, it's worth paying for someone to look at it. I spent way too much time tackling this stuff myself and the best move I ever made was taking it to a CA.

[will_e_chill]

I would suggest your friend talk to a CA or CPA (US accountant) who knows how to deal cross border issues.

I would suggest he call Ryan Carey at Moodys. He knows about this cross border stuff.

http://www.moodystax.com/about-us/our-team.html

Our firm did a blog on Canadians buying US property a while back that your friend might also find useful.

http://www.taxandestateplanning.com/us-taxation/

Good luck.