Returning to Canada Tax Liability Question

[ikkonikko]

Hello all,

I have been living in Japan for almost a year now and have been trying to get some information on my tax liability situation in Canada in preparation for what looks to be my return in the spring of 2005.

I have searched the CCRA website up and down and all of the information I have found is vague and non-committal in nature as far as giving me a definitive - Yes, you will be liable for taxes on wages earned in Japan or, No, don't sweat it, you are a non-resident.

If anyone has gone through the process of being determined resident / non-res. byt the CCRA, any info / guidelines would be helpful.

Our situation ( my wife and I ) is basically thus;

Upon our return to Canada we will have been away for 1.5 year / 18 mos.

We do not own any real estate in canada, nor maintain any residences ( other than a mailing address at my wifes fathers house for some mail )

We both have kept canadian bank accounts in order to make payment on student loans - we only send remittances home in the amount of these loan payments

We retained one canadian credit card

Quite honestly, we are both sweating bullets as we have been given some conflicting information from some anecdotal sources that allude to a possible liability of canadian income tax on every dollar we have earned in japan. ( In which case we would be looking at going home to bankruptcies. )

In particular - has anyone ever heard of 2 years being the magic number for automatic non-resident tax status, where any period of less than that is typically liable for tax?

I really appreciate any advice on this subject, particularly first-hand accounts in laymans terms.

Believe me when I say I do recognize the naivete and complete lack of proper preparation on my part that is indicated by my asking this question 12 months after having lived abroad...

( please - no redirects to ccra.gc.ca - there isnt enough tylenol in the world to help me get over their complete lack of sensibility when they designed their website and abyssmally hopeless attempts at providing information to the general public, lets not get me started....)

Thanks in advance,
Ikko

[Reba]

as long as you still have a Canadian mailing address, Canadian bank accounts and Canadian credit, you are still a resident of Canada according to CCRC, no matter how long you've been gone.

Precedence has been set by CCRC and they have sued Canadians for back taxes even after the Canadian has been out of the country for 3+ years. He made the mistake of keeping a Canadian mailing address and RRSP accounts.

I'm afraid that unless Canada has a tax treaty with Japan, you are very likely liable to have to pay CCRC some income taxes on what you've been paid in Japan.

Had you not kept all of that stuff, and if upon exit you had filed a notice with CCRC to tell them you've cut all ties, then you would not have had to worry about it.

Sorry

[Brenda]

According to my father, you will not be deemed a resident for this past year (2004). The magic number is not 2 years but a 183 days. Living in Canada for 183 days in the year means you pay tax in Canada.

Keep all your paperwork, airline tickets, tax receipts for Japan, your Canadian bank statements, etc. I can see why the person Reba mentions was still considered a resident even after having not lived in Canada for three years; having a tax sheltered investment for retirement points to the fact that he/she planned on returning at some point.

In your situation, having a bank account to pay back your student loans does not automatically indicate residency; it indicates personal accountability. I maintain an account for that purpose as well. Besides, I checked out their website and found that a things like a bank account, provincial driver’s licence, and having a Canadian passport are considered as secondary residential ties.

But the only way to get a definitive answer is to complete one of their forms to determine your residency. I would do that first, then you will get some idea as to where you stand. Or call a good accountant for some advice.

[JLH]

Hey!
From speaking with an accountant before I left for Sweden he advised me that if you are away for 2 years or more (by then you should be close to becoming a permanent resident somewhere?!) then you are tax free. But I would try and contact maybe your inlaws to contact an accoutant.

Good luck!
JLH

[Julie]

About tax libility with Canada...

I'm in the US for two years, but plan to go back to Canada. All my income comes from "Canadian sources" - that is interest and dividends, and is taxed at 15% (the broker withholds the tax and sends it to the CCRA) before it's credited to me. That, by the way, is the final obligation to the CCRA on these amounts BUT if you receive other income in/from Canada for which the 15% is not deducted - such as interest on a term deposit, or payments from a RRIF - you have to do a "Voluntary Disclosure".

Phone the CCRA International Office (number are online) and tell them about it. You'll be given a registration number, and they'll tell you the percentage of this other income you should send - since it varies, i.e. pure interest is only 10% - and where to send it. That way you're cool with Revenue Canada and there should be no problems when you return.

15%, by the way, is because the US and Canada have a tax treaty. I'm pretty sure that's the case with Japan, but this you can also check online or ask the CCRA when you phone.

Cheers!

[Julie]

In addition...

No, you would not pay taxes to both Canada AND Japan for the same income!! If the case ever arises where you have to declare you worldwide income to the CCRA, and you can provide proof that you have paid income tax in Japan for income earned in Japan, this tax would be a credit against any Canadian taxes owing.

One of the goals of tax treaties is to avoid double taxation.

[gerryradul]

I've been working/residing in the Middle East for over 9 years now. The last time I filed an Income Tax return was 1995 for income I earned in 1994.

I was advised that as a non-resident, I could not maintain a bank account, RRSP, invest in any Mutual Funds or use any Government services. So I haven't. The only thing I maintained was a Manitoba drivers license because I required it to obtain a local drivers license in the Middle East. That expired 2 years ago and I have a Middle East drivers license now.

Now I am interested in returning to Canada but have no idea what the concequences will be tax wise. There is no company here issuing a T-4 slip to the Canadian Govenment thus there is no income reflected in Canada.

If the Canadian Government chooses to Tax me to death for anything I earned in the last 9 years, then I will not return to Canada.

Watch out for the TAX agreements that Canada has with the U.S. and other countries because they will take their share in a heart beat the minute you set foot back in Canada. Revenue Canada will leave you broke and devastated and thing nothing of it.

[dannykool]

[quote="Reba"]as long as you still have a Canadian mailing address, Canadian bank accounts and Canadian credit, you are still a resident of Canada according to CCRC, no matter how long you've been gone.
Precedence has been set by CCRC and they have sued Canadians for back taxes even after the Canadian has been out of the country for 3+ years. He made the mistake of keeping a Canadian mailing address and RRSP accounts.
I'm afraid that unless Canada has a tax treaty with Japan, you are very likely liable to have to pay CCRC some income taxes on what you've been paid in Japan.
Had you not kept all of that stuff, and if upon exit you had filed a notice with CCRC to tell them you've cut all ties, then you would not have had to worry about it.
----

I think the ties where you are are as important, not just the ties you break in Canada. RRSP's are usually ok and in fact if you cash them, you have to pay penalties and income tax in the year you cash them. So trying to establish ties where you are make a lot of sense.