Resident status in Canada

[alter_ego]

Hi All,

I'm confused as to what constitutes residency status in Canada. I'm a Canadian citizen who works and permanently lives in Hong Kong. I currently don't have a property in Canada, but I'm considering buying an apartment which I intend to rent out. Am I going to be considered a resident in Canada if I owe a property there? If so, does it mean I will have to pay taxes in Canada?

Does anyone have experience in this matter?

Thank you in advance.
a.

[Football16]

Buying a property in HK has nothing to do with the issue you are raising. The issue for Canadians is whether you are a resident of Canada for tax purposes. Geoexpat has a number of threads on these issues but in a nutshell one of the primary tests used by the Canadian Revenue Agency is owning a home in Canada over which you are considered to have control like if a too close relative was leasing it. They prefer an arms length rental to a non-relative as a rental agreement with a third party would not allow you to stay.

There are a number of tests they apply but they look at primary issues then other things like drivers licence, medical (which in most provinces ceases after 3 months).

I suspect you are not a resident for tax paying purposes and no doubt just check the box on the form that says that.

[timklip]

I read OP as buying a property for rental purposes in Canada...according to the relevant documentation regarding non-residency, , specifically Paragraph 6 and 17, you should be okay as long as you are not renting to a family member as F16 says...

[HKFella]

If you have been a non-resident of Canada for tax all this time, then buying a property there and renting it alone isn't going to turn you into a tax resident (unless your totality of circumstances causes CRA to consider you a tax-resident of Canada).

To have been considered a tax non-resident of Canada, you need to have cut off your residential ties with Canada when you left Canada (a spouse living in Canada often means you haven't).

As Football16 said, any Canadian property you buy - when ready for occupancy - needs to be rented at arm's length, not held vacant. CRA don't want you to have on-demand accommodation from property you own there - e.g. retain a room (or basement or in-law apt etc) in the property you rent, for your own use on visits. Otherwise it can be interpreted as residential ties.

There needs to be a degree of permanence to your absence - usually a 2-year absence is sufficient, but CRA's interpretation depends on a "totality of your circumstances". You need to be taxable somewhere (if you live in a tax-free haven, I guess that still counts as taxable, except that tax is zero - I don't know). You should not be seen to have left Canadian residency for the express purpose of avoiding Canadian income tax.

Though they mention closing bank accounts, giving up driver's licence, closing club memberships etc as evidence of cutting residential ties with Canada, these are secondary issues and I have not found them overly fussed about this as long as these are not particularly active and your primary residential ties are clean. I kept my Ontario driver's licence for 14 long years while outside and CRA didn't ask or care (many others have kept it). I don't think they'd care about the odd Canadian bank account either unless its activity shows residential ties - people do need these sometimes even without residential ties (more so now, when it's hard to open an account without showing up in person, under KYC standards). After all, you may need it simply to support investments or now to receive rent.

Don't ever use your Canadian health card on a visit there - normally it lapses after a few months's absence but I don't know how they could know you're gone. That is tantamount to using the public health care system paid for by taxpayers and treating yourself as a tax-resident.

It can also have to do with what your status was when you lived in Canada - were you a tax return filer there and then did you advise CRA when you left Canada, and then stop filing returns in subsequent years? I can't say much on that but that alone may not be that big a problem, though in some circumstances it might.

The CRA website mentions the general principles, but in granular terms in practice, some of it has to do with interpretation in light of the general experience of others and what courts have held.

Good luck on your investment. May the loonie do well for you too.

[HKFella]

You need to be aware of the Canadian tax consequences of buying an investment property and renting it out.

When you start renting that apt as a no-resident, you will need to appoint someone to be an "agent" there who will regularly remit non-resident withholding tax from your rental to CRA before paying you. You will then need to file a tax return as a non-resident by a designated date every year to settle final tax accounts with CRA. For W/H tax to be on net rent (after estimated expenses including interest, condo fee, property manager fee, repairs, etc) instead of gross, you can file a NR6 with CRA through the same agent (if he/she is willing to take responsibility for you) - with an estimate of gross rent and expenses - well in advance of commencing the rental.

In such case, if you fail to file the tax return by the annual deadline, your agent will be liable to make good to CRA backtaxes and interest on the gross amount. That agent can be a family member or a friend or anyone who is willing to trust you. In my case it was my R/E agent himself. He also acted as my property manager.

It seems daunting, but actually it isn't if you have someone in Canada who can handle the tax thing and property management/tenant relationship. The tax thing becomes routine every year. I did the whole tax rigmarole and return myself from HK without needing a tax accountant (though for the first time I spent a good number of hours on a weekend studying/interpreting the CRA site and completing the forms), and each time CRA assessed it as filed.

Capital gains will tax apply when you sell the apt (and there are again some CRA W/H tax conditions for non-res vendors). That tax would also usually apply if instead you eventually resumed residence in Canada and started living in the apt - but there are some possibilities of applying to CRA for deferring its payment until the apt is sold.

Check the CRA website for the latest on all this.

[alter_ego]

Football16, timklip and HKFella - thank you very much for your help.

[Football16]

A friend and business associate who is a Canadian but non-tax payer due to work in Asia for many years has just bought a condo in British Columbia where the furniture is being shipped from HK. The form has several choices that must be filed with CRA. One is as a Canadian coming back as a permanent resident and the other is for a seasonal resident.

The issue is that the intention is to live in their Thailand living condo and rent out the BC condo fully furnished.

The question is if there will be any tax implications by checking this box for "seasonal resident?"

Right now this person is not planning to live there at all but will go back to BC as you must be there when the furnishings arrive and meet the agent to rent it out and manage the property much like HK Fella suggests is the process in his post above.

Any one have any views?