Non-Residency, Overseas Income, and the Canadian Taxman

"Here's one for you, 19 for me..." - The Beatles, Taxman

Do I Have to Pay Taxes on Money I Make in Korea?

A popular question with many interpretations.... here's a succinct summation:

If you declare non-residency, you do NOT have to pay taxes on overseas income.

If you don't have NR status, then you are *ahem* SUPPOSED to pay taxes on any monies (that you report) to Revenue Canada.

That's the simple answer - but you know that life ain't that easy!

What is "Non-Residency" and How Do I Get It?

Basically, being a "non-resident" frees you from having to pay taxes on any income earned overseas. If you keep any investments in Canada that pay any kind dividends or capital gains, you will be required to pay the proper tax on those monies.

NOT declaring non-residency simply means that you will be taxed in Canada for your overseas income, LESS the amount already decucted in taxes in that country. For example, say your overseas earnings puts you in a 27% (Cdn.) tax bracket. Then let's say that you pay 4% income tax in Korea. You are therefore on the hoof to pay 23% of said income to the Cdn. gov't.

Declaring non-residency is a matter of some debate and there is a lot of "grey area" to wade through. I spent the better part of an afternoon surfing the Canadian Gvt's painfully labyrinthine website and making misdirected 1-800 phone calls to unfeeling voice-messaging systems until I finally got the information I needed.

Form NR73 E - Determination of Residency Status is a form which you may fill out to have Revenue Canada assess your case. This is optional, and there is no guarantee that by doing so you will be granted NR status (you will need Adobe Acrobat Reader to read it on-line). You should also read the pamphlet entitled Canadian Residents Abroad for further information (Acrobat not required).

An excellent article from CRA (Canadian Residents Abroad) Magazine, which was sent to me by "The Lemon", is a great help, and I will quote from parts of it here; please click the link below to read the full article:

"Residency Revised: CCRA¡¯s IT-221R3 Bulletin"

"...the question of residency is one of fact and depends on the specific circumstances of each individual... the most important factor to be considered in determining whether an individual who leaves Canada remains a resident of Canada is whether that individual maintains residential ties with Canada. The residential ties of an individual that will usually be significant residential ties are the locations of the individual¡¯s: (a) dwelling place, (b) spouse/common-law partner, (c) dependents."

In addition to these primary ties, there are secondary ties which are also taken into consideration. These include:

(a) Canadian personal property (such as furniture, clothing, automobiles and recreational vehicles)
(b) Canadian social ties (such as memberships in Canadian recreational/religious organizations)
(c) Canadian economic ties (such as employment with a Canadian employer and active involvement in a Canadian business, Canadian bank accounts, retirement savings plans, credit cards and securities accounts)
(d) landed immigrant status or appropriate Canadian work permits
(e) Canadian hospitalization and medical insurance
(f) Canadian driver¡¯s licence
(g) Canadian vehicle registration
(h) a seasonal dwelling place in Canada or leased dwelling place
(i) a Canadian passport
(j) membership in Canadian unions/professional organizations

...While CCRA says it would be unusual for a single secondary residential tie with Canada to be sufficient to make an individual a resident of Canada, the unanswered question is how many and which secondary ties are the ones that will create a residential tie to Canada." - Tony Schweitzer & Graham Turner, writing for CRA Magazine.

Perhaps the most significant change is the removal of the so-called "Two-Year Rule", where Canadians who left the country for more than two years were pretty much assured of being deemed a Non-Resident. This is no longer the case! Personally, I'm not so sure that this is a positive change...

So, What Does All This Mean?

Revenue Canada (CCRA) will look at your "ties", both primary and secondary, and make a judgment based on your individual case. There are apparently no hard and fast rules which govern how they make their decisions, BUT they will apparently let some of the secondary ties slide (e.g. bank account, credit card, driver's license). They also take into consideration your visits to Canada (i.e., how often and for how long). The best thing to do is call them up and ask about your own individual case.

To call from within Canada/US: 1-800-267-5177
To call from outside Can./US: (613) 952-3741 (call collect)
The number I called (from BC): 1-800-959-8281
All you masochists out there can feel free to visit the Canada Customs and Revenue Agency website.

I also highly recommend checking out the CRA Magazine's website, since there is a lot of valuable information there for wayward Canucks like us!

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