Tax obligations of a permanent resident

[geo909]

Hi all,

I'm Greek and I'm doing my phd in Ontario. I am a teaching assistant and
research assistant, and I have some scholarships, so I have income in
Canada and I fill my taxes every year. I've been here for about 5 years on
a study permit.

Question 1: I fill taxes here, I rent an apartment, have bank accounts, etc,
which means that I have ties here. I assume that this also means that I am a
"tax resident", or a "resident for tax purposes", right? Is there any different
terminology for my tax status in Canada?

I applied for permanent residency a couple of months ago. Now my father
back in Greece is a bit worried. He's getting older and told me that he had
intentions to pass me all his property soon. He thinks that being a PR means
that I will have more tax obligations in Canada than I have right now with my
study permit.

Question 2: Is my father right to be worried? I think that, since I do have to
fill taxes in the first place, my obligations are the same no matter if I'm a PR
or here on a study permit. Does anything change if one becomes a PR from
being just a student, when it comes to taxes?

Thanks in advance..

 

[seton]

Question 1: I fill taxes here, I rent an apartment, have bank accounts, etc,
which means that I have ties here. I assume that this also means that I am a
"tax resident", or a "resident for tax purposes", right? Is there any different
terminology for my tax status in Canada?

Nope - you have it about right. There's a difference between being a factual resident or deemed resident, but none apply in your case right now.

I applied for permanent residency a couple of months ago. Now my father
back in Greece is a bit worried. He's getting older and told me that he had
intentions to pass me all his property soon. He thinks that being a PR means
that I will have more tax obligations in Canada than I have right now with my
study permit.

Question 2: Is my father right to be worried? I think that, since I do have to
fill taxes in the first place, my obligations are the same no matter if I'm a PR
or here on a study permit. Does anything change if one becomes a PR from
being just a student, when it comes to taxes?

There would be no change between your study permit and PR - you are correct, as a tax resident in Canada, it's the same tax laws being applied.

In your specific case, what will essentially happen is the property would be considered "sold" in Greece when he passes, and his estate will be taxed in Greece for any taxes owing.

Once taxed, then you can inherit the property tax free (i.e. after being tax in Greece). Canada does not have inheritance taxes, so you will not pay any taxes in Canada receiving either the property or the cash value if it's sold. The value of the property when you inherit it becomes the adjusted cost base, and any appreciation or income from the property would be taxable in the form of a capital gain (if you sell the property at a greater value than the adjusted cost base) or when you receive rental income.

The only catch I will leave here is there may be specific transfer taxes in Greece (you should consult a Greek tax accountant or research it yourself). My answer is mostly for the Canadian side - i.e. you aren't going to be taxed on inheriting the property (or other assets) but it is expected that his estate will be taxed on disposition.

 

[geo909]

Nope - you have it about right. There's a difference between being a factual resident or deemed resident, but none apply in your case right now.

There would be no change between your study permit and PR - you are correct, as a tax resident in Canada, it's the same tax laws being applied.

Thanks for the confirmation.

In your specific case, what will essentially happen is the property would be considered "sold" in Greece when he passes, and his estate will be taxed in Greece for any taxes owing.

Once taxed, then you can inherit the property tax free (i.e. after being tax in Greece). Canada does not have inheritance taxes, so you will not pay any taxes in Canada receiving either the property or the cash value if it's sold. The value of the property when you inherit it becomes the adjusted cost base, and any appreciation or income from the property would be taxable in the form of a capital gain (if you sell the property at a greater value than the adjusted cost base) or when you receive rental income.

The only catch I will leave here is there may be specific transfer taxes in Greece (you should consult a Greek tax accountant or research it yourself). My answer is mostly for the Canadian side - i.e. you aren't going to be taxed on inheriting the property (or other assets) but it is expected that his estate will be taxed on disposition.

Many thanks for the information. Yes, I need the Canadian side of things, I'll find an accountant
in Greece for details on the Greek taxation.

Now, in your answer you're talking about the inheritence scenario. This is however what my father
kindly wants to avoid for me; there are indeed transfer taxes that are less than inheritance
taxes, and I will pay considerably more in the end if I wait to inherit the properties.

So, let's say that my father transfers to me the properties now. There is also rental income from
these properties. In the Greek tax system, I will be paying two kinds of taxes:

i) taxes on the received rental income
ii) taxes for owing property (this is independent of any potential rental income that one gets or does not get).

Could you help me with the following questions?

Given that I pay all the taxes I have to back in Greece:
1) Will I have to pay taxes on the rental income in Canada as well?
2) Will I have to pay property taxes in Canada as well?
3) So far as a student I had pretty small income and was getting a tax refund; no matter if the
answer to 1 and 2 is 'yes' or 'no', is my tax situation going to change?

Many thanks in advance..

 

[seton]

Given that I pay all the taxes I have to back in Greece:
1) Will I have to pay taxes on the rental income in Canada as well?

Any income earned worldwide would be taxed in Canada as long as you are a Canadian tax resident.

However, you will be eligible for foreign tax credits which will reduce your taxation - essentially you actually only end up pay tax at the higher rate between Greece and Canada (only once) after the effect of the tax credit in Canada.

Caveat: There is a tax treaty between Greece and Canada, which may impact your tax situation. Refer to http://www.fin.gc.ca/treaties-conventions/greece_1-eng.asp

2) Will I have to pay property taxes in Canada as well?

Nope, property taxes are municipal and relevant to property you own in Canada only.

3) So far as a student I had pretty small income and was getting a tax refund; no matter if the
answer to 1 and 2 is 'yes' or 'no', is my tax situation going to change?

Short answer: yes. Your net income will ultimately increase as it includes your worldwide income, so your tax refund in Canada will decrease for income tested refunds depending on where you are in your threshold.

 

[geo909]

Any income earned worldwide would be taxed in Canada as long as you are a Canadian tax resident.

However, you will be eligible for foreign tax credits which will reduce your taxation - essentially you actually only end up pay tax at the higher rate between Greece and Canada (only once) after the effect of the tax credit in Canada.

Caveat: There is a tax treaty between Greece and Canada, which may impact your tax situation. Refer to http://www.fin.gc.ca/treaties-conventions/greece_1-eng.asp

Ok, so all in all there is no double taxation. That's what I wanted to make sure.

Nope, property taxes are municipal and relevant to property you own in Canada only.


Just out of curiosity.

Short answer: yes. Your net income will ultimately increase as it includes your worldwide income, so your tax refund in Canada will decrease for income tested refunds depending on where you are in your threshold.

So, I guess if the income is large enough, I'll have to
pay taxes instead of getting a refund.. Thanks, that's
good to know. I'll go start checking my numbers to
see where I stand.

Thanks a lot for your help.

 

[geo909]

Wait, I think I'm still confused.

Assume that my father passes me the properties and that from now on I pay my taxes in Greece. Also
assume that the taxes on the rental income are higher in Greece than Canada. If the income is large enough,
the refund in Canada will be lowered. So far so good.

But can the income be considered large enough so that I'll have to pay taxes instead? I'm going to be higher in
the threshold, but what would cause that is income for which I am already paying taxes for in Greece. Is there
any chance that in the end I will be paying taxes in Canada as well because of being high enough on the treshold?

I'm in the process of reading the treaty but it's my first time reading such documents and I'm a bit lost to be honest.

 

[seton]

But can the income be considered large enough so that I'll have to pay taxes instead? I'm going to be higher in
the threshold, but what would cause that is income for which I am already paying taxes for in Greece. Is there
any chance that in the end I will be paying taxes in Canada as well because of being high enough on the treshold?

Yes, that is possible. However you would be eligible for a foreign tax credit, which would negate some of the tax on the Canadian side - all else equal, you will generally end up paying the highest tax rate between the 2 countries.

 

[geo909]

Yes, that is possible. However you would be eligible for a foreign tax credit, which would negate some of the tax on the Canadian side - all else equal, you will generally end up paying the highest tax rate between the 2 countries.

Ok, thanks for the overview, I really appreciate your help.