New immigrant subject to Canadian taxes on world-income?

[Curiosity]

I'm trying to understand the taxation rules, specifically related to immigration, residential ties and world income for tax purposes.

Let's consider the following situation:

- A Canadian citizen and non-resident get married early in the calendar year (let's say January)
- The non-resident applies for permanent residency but remains in his/her country and works (receives incomes) until his/her permanent residency request is granted
- The Canadian citizen continues living in Canada but does not own a residence; he/she either rents or stays at his/her parent's residence until the spouse is able to immigrate
- The non-resident is accepted as a permanent resident of Canada, quits his/her job, and immigrates late in the calendar year (let's say October)
- The permanent-resident (formerly non-resident) receives no world income from the day he/she immigrates to Canada until the end of the calendar year.

Please note the following:
- The permanent resident did not stay in Canada for 183 days or more in that tax year
- Prior to his/her arrival to Canada (immigration),
o The permanent resident did not have a home in Canada
o The permanent resident did have a spouse in Canada, effective January
o The permanent resident did not have personal property in Canada, such as a car or furniture
o The permanent resident did not have social ties to Canada
o The permanent resident did not have any other ties, such a Canadian driver's licence, Canadian bank accounts or credit cards, health insurance with a Canadian province or territory.

Is the permanent resident, in any way, subject to Canadian taxes for the world income received before his immigration date?

My initial thoughts... the permanent resident should only be taxable on world-income received after his/her immigration date... is this correct?


Thank you in advance!

 

[toby]

I am afraid you would b considered a Canadian taxpayer from the time you married. There are three main tests for declaring someone a taxpayer in Canada, and having a spouse or dependent child in Canada is one of them.

Hopefully there is a tax treaty between Canada and your country that will allow you to deduct any taxes paid to your country fro taxes owed to Canada.

Warning: usual tax rant coming.
Seems unfair, does it not, to pay taxes on income earned abroad, that has nothing to do with Canada? But fairness and tax collection are becoming vastly different things in developed countries, where someone -- anyone with money -- must pay for the social programs enjoyed by the many, including those who do no work and pay no taxes at all.

 

[Curiosity]

About the three criteria... spouse, home, and 183 days or more

If one criteria is met, is it really enough to be declared resident?
How can an individual without a residence in Canada, without a resident visa (temporary or permanent), and who's only been in a country for three months in the taxation year be treated as a resident for that taxation year?

See below, from CRA. The information in bold leads me to believe significant that residential ties are only established or re-established when you move or move back to Canada.



YOU BECOME A RESIDENT OF CANADA FOR INCOME TAX PURPOSES WHEN YOU ESTABLISH SIGNIFICANT RESIDENTIAL TIES IN CANADA, USUALLY ON THE DATE YOU ARRIVE IN CANADA.

Newcomers to Canada who have established residential ties with Canada may be:
protected persons;
people who have applied for or received permanent resident status from Citizenship and Immigration Canada; or
people who have received approval-in-principle from Citizenship and Immigration Canada, to stay in Canada.

If you were a resident of Canada in an earlier year, and you are now a non-resident, you will be considered a Canadian resident when you move back to Canada and re-establish your residential ties.

Residential ties include:
a home in Canada;
a spouse or common-law partner (see the definition in the General Income Tax and Benefit Guide) and dependants who move to Canada to live with you;
personal property, such as a car or furniture; and
social ties in Canada.

 

[haver]

Hi Curiosity,

You will be considered as a resident of Canada for income tax purpose since the day you are landing in Canada and never before arrival day to Canada.

 

[steaky]

Well, many people managed to get non resident for tax purposes even they met the three criteria:
spouse, home and 183 days or more. There should be a court case, but I forgot where I read.

Haver is correct. Some people are considered "non resident" for part of the year and "resident" for the rest of the year.

 

[Leon]

You can read about tax residency from CRA directly here: http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html and even request their assistance in determining if and when you are considered a tax resident.

 

[Curiosity]

@ Haven,

If true, that is good news
The non-resident spent >>> 6 months in his/her country (not Canada), working, waiting for the PR status.
During that time, the Canadian citizen spouse spent that time in Canada, working, waiting for his/her spouse to land.

 

[toby]

You can read about tax residency from CRA directly here: http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html and even request their assistance in determining if and when you are considered a tax resident.

Normally if a person satisfies any one of the three main criteria (dependants, house, 183+ days in Canada), he/she is considered to be a taxpayer. This is true even if the person was a taxpayer, then left Canada; if he or she leaves behind a house or dependant, he is still a taxpayer to Canada.

However, upon sober reflection, I am not absolutely sure this is true where the person has not yet become a resident (for immigration purposes). In other words, does the simple act of marrying a Canadian resident make an otherwise non-Canadian-taxpayer into a Canadian taxpayer?

As Leon says, you could ask CRA -- but you cannot be sure that the person answering the telephone knows the answer; these CRA employees have been wrong before. So, I suggest three things:

1. Call CRA, but ask the CRA employee who answers the phone to verify with his supervisor.

2. Ask your question in the Finance and Taxes section, so that Jonboy (a real expert) will answer.

3. Tell us what you found.

Thanks for no. 3.

 

[steaky]

As Leon says, you could ask CRA -- but you cannot be sure that the person answering the telephone knows the answer; these CRA employees have been wrong before.

You can also mail a form (NR74-Determination of Residency Status (Entering Canada) to the CRA for a tax opinion for determination whether you are tax payer or non (tax) resident of Canada.

As I said before, many people are non residents even they met one or more of the 3 criteria.

 

[toby]

You can also mail a form (NR74-Dermination of Residency Status (Entering Canada) to the CRA for a tax opinion for determination whether you are tax payer or non (tax) resident of Canada.

As I said before, many people are non residents even they met one or more of the 3 criteria.

=

True, Steaky, but "resident" for immigration purposes is different from "resident" for tax paying purposes. So, the poster needs to be careful before concluding he is not liable for taxes on worldwide income. If CRA deems him to be a Canadian taxpayer (because he has a wife in Canada), even though he is not yet a "resident" for immigration purposes (i.e. has not landed yet), and he does not declare worldwide income, he could be reassessed and charged back taxes plus interest -- and maybe even gross negligence penalties (depends on the mood of the auditor).

That's why I suggest he ask before concluding he need not declare worldwide income to Canada.

 

[steaky]

Toby, I know the difference between the two. That's why I suggest the poster can mail the NR74 to CRA for a tax opinion. But I read somewhere in this website: http://www.fin.gc.ca/pub/index-eng.asp in which CRA deemed a new immigrant to be Canadian taxpayer (because have family in Canada) but somehow the immigrant managed to remain non resident for tax purposes.

Like I said, in the other post, one might need a legal opinion from a Canadian lawyer highly specialized in tax laws.

 

[links18]

Warning: usual tax rant coming.
Seems unfair, does it not, to pay taxes on income earned abroad, that has nothing to do with Canada? But fairness and tax collection are becoming vastly different things in developed countries, where someone -- anyone with money -- must pay for the social programs enjoyed by the many, including those who do no work and pay no taxes at all.

Thanks for the warning. Too bad for me, I didn't heed it. :-\

 

[Curiosity]

Let's add a bit of tax-treaty information to this...
I went through a few tax treaties (for different countries) and the following line (taken from the Canada-United States tax treaty) is more or less repeated in several of them.
www(dot)fin(dot)gc(dot)ca/treaties-conventions/treatystatus_-eng.asp

"salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State."

I'm no lawyer, but assuming the extreme case where you are considered resident of both countries for tax purposes, I understand from the line above that your wage is only taxable in the country where the employment was exercised. In my example from the initial post, that would mean that the foreign income received as part of an employment in that foreign country would not be taxable in Canada.

Does that make sense?

 

[links18]

Let's add a bit of tax-treaty information to this...
I went through a few tax treaties (for different countries) and the following line (taken from the Canada-United States tax treaty) is more or less repeated in several of them.
www(dot)fin(dot)gc(dot)ca/treaties-conventions/treatystatus_-eng.asp

"salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State."

I'm no lawyer, but assuming the extreme case where you are considered resident of both countries for tax purposes, I understand from the line above that your wage is only taxable in the country where the employment was exercised. In my example from the initial post, that would mean that the foreign income received as part of an employment in that foreign country would not be taxable in Canada.

Does that make sense?

There are a lot of depends, like if you hold citizenship in one country or not, whether you are considered a resident alien or a non-resident alien (U.S.) etc. If you hold U.S. citizenship, you are taxed on your worldwide income regardless, although there is a foreign earned income exclusion (only applies to earned income). Canadian taxpayers can take advantage of various foreign tax credits, but it often doesn't prevent double taxation completely.

 

[Soopergal]

I got a letter from the Tax office asking me to tell them my worldwide income for 2009 before coming to Canada because I may be eligible for GST/HST return. If I declare, are they going to tax me on my income prior to moving to Canada?