"I'm currently a non-resident of Canada living in the UK, but I am thinking of moving back to Canada later this year. I just have a question with regards to when I would be considered UK resident for tax purposes by the Canadian Revenue Agency? Would they use the 183-day rule? And would that apply from the beginning of the UK Tax Year (April 6th) or the Canadian Tax Year (Jan 1st)?
The reason why I ask is that I have my own company in the UK and wish to take a large dividend payment out after April 6th of this year, so that it will count in next years UK tax year. I also don't want to be considered a Canadian Resident for the next tax year since they will tax this dividend payment as world-wide income if I am."
Take this for what it's worth since I am not a certified tax expert but here goes:
1) each country applies applies its own rules independently without considering the other unless there is a conflict when a person is considered resident in both countries simultaneously, in which case the terms of the Canada-UK Double Taxation Treaty with 2003 Amendments come into play to resolve the conflict;
2) Canada judges residency based on when you establish ties, not the length of time in the country in a tax year, so visiting Canada for one week and buying a house might trigger that date of entry as the date determining residence even if you spent the rest of the year in the UK - a house and a spouse/dependents in the country are key ties, as explained in the Canada Revenue Agency bulletin on Determination of an Individual's Residence Status IT-221-R3;
3) the UK judges residency based on being in the UK 183 days or more in a tax year; note that the UK is about to change the rule, as soon as the latest budget is passed, so that the date of departure (or arrival for incomers) will now count as a day in the UK; as of now day of arrival or departure do not count in the 183 days
4) you cannot be resident nowhere at any time with respect to tax, you will always be resident at least in one country, sometime two at the same time - the double taxation treaty you will notice also has an objective to prevent the avoidance of taxation and it allows the CRA and HMRC to enquire about you from each other;
Bottom Line: Your CRA/Canadian tax liability would only arise for amounts received after you established residence, so you only have to make sure you receive the dividend before the date of arrival in Canada when you establish those ties (it's the date of arrival not the date of buying the house or whatever); you would then be taxed in the UK and report that income on the UK return not the Canadian one (actually I'm not 100% sure that you might not have to report it on the Canadian return and then claim an exemption; a tax accountant would have to say how exactly to report it). It would be easiest to leave the UK before 183 days have passed from April 6 onwards to avoid the double taxation rules and the tie-breaker provisions that might end up with you being considered resident of the wrong country at the time of the dividend payment.
I presume that you would also have checked out the relative tax rates and figured out that it is better to receive the dividend in the UK and not Canada. Dividends are taxed more in the UK for higher rate taxpayers (taxable income >£36,000 in for 2008/2009). Canadian tax rates on dividends are lower for all except the narrow income range from $72-76k. Speak to an accountant to confirm your position.
Take this for what it's worth since I am not a certified tax expert but here goes:
1) each country applies applies its own rules independently without considering the other unless there is a conflict when a person is considered resident in both countries simultaneously, in which case the terms of the Canada-UK Double Taxation Treaty with 2003 Amendments come into play to resolve the conflict;
2) Canada judges residency based on when you establish ties, not the length of time in the country in a tax year, so visiting Canada for one week and buying a house might trigger that date of entry as the date determining residence even if you spent the rest of the year in the UK - a house and a spouse/dependents in the country are key ties, as explained in the Canada Revenue Agency bulletin on Determination of an Individual's Residence Status IT-221-R3;
3) the UK judges residency based on being in the UK 183 days or more in a tax year; note that the UK is about to change the rule, as soon as the latest budget is passed, so that the date of departure (or arrival for incomers) will now count as a day in the UK; as of now day of arrival or departure do not count in the 183 days
4) you cannot be resident nowhere at any time with respect to tax, you will always be resident at least in one country, sometime two at the same time - the double taxation treaty you will notice also has an objective to prevent the avoidance of taxation and it allows the CRA and HMRC to enquire about you from each other;
Bottom Line: Your CRA/Canadian tax liability would only arise for amounts received after you established residence, so you only have to make sure you receive the dividend before the date of arrival in Canada when you establish those ties (it's the date of arrival not the date of buying the house or whatever); you would then be taxed in the UK and report that income on the UK return not the Canadian one (actually I'm not 100% sure that you might not have to report it on the Canadian return and then claim an exemption; a tax accountant would have to say how exactly to report it). It would be easiest to leave the UK before 183 days have passed from April 6 onwards to avoid the double taxation rules and the tie-breaker provisions that might end up with you being considered resident of the wrong country at the time of the dividend payment.
I presume that you would also have checked out the relative tax rates and figured out that it is better to receive the dividend in the UK and not Canada. Dividends are taxed more in the UK for higher rate taxpayers (taxable income >£36,000 in for 2008/2009). Canadian tax rates on dividends are lower for all except the narrow income range from $72-76k. Speak to an accountant to confirm your position.
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