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Let us imagine the situation of a permanent resident
and his family who landed in Canada a few years ago. Shortly after
landing the father left his family comfortably ensconced in Canada
while he returned to the UAE to resume his relatively high-paying
tax-free employment or business activity. Both he and his wife
filed tax returns every year but, based on advice from other similarly
situated permanent residents and friends, they claimed some (but
not all) of their non-Canadian income. You may think that obtaining
a PR Card and avoiding tax problems would be easy for this family.
Not necessarily - because Canada and the UAE have recently signed
a Tax Treaty that, once ratified and in force (anticipated to
happen in the fall of 2002), will go a long way to lifting the
fog that has existed between these countries on tax and other
sharing-of-information issues (such as the dates when the person
was physically present in the UAE). As Canada has signed a similar
tax treaty with Kuwait this scenario also applies to Canadian
permanent residents who continue to live and work in this country.
The underlying purpose of this (and most other) tax treaties is
to set up a proper regime to encourage investment between the
two countries so that honest taxpayers (corporate or individual)
earning income in both countries are not taxed twice on the same
income. However, the title to many tax treaties states the purpose
as also being "For the avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and
on Capital." This means both signatory countries are agreeing
to share certain types of information and to be more transparent.
As all Canadian permanent residents should know, Canada imposes
taxes on worldwide income including salary, income from partnerships
or dividends, and taxable benefits such as automobiles and residences.
It makes no difference if this income is earned in Canada or abroad.
Canadian tax authorities with newfound access to UAE-supplied
information may now call into question those tax returns previously
filed by Canadian permanent residents that were "economical"
with the stated income. With the Canadian tax authorities better
able to determine the permanent resident's non-Canadian taxable
income, the implications for corner-cutters will be severe!
With these tax treaties in place, Canadian tax authorities will
be able to confirm much of the information provided by permanent
resident taxpayers who continue to earn income in the UAE and
Kuwait (and any of the 76 other jurisdictions with a tax treaty
with Canada such as Cyprus, Egypt, Jordan, India and Pakistan).
This means that tax officials could obtain information contained
in all documents and forms on file with the UAE and Kuwait governments
(or other tax treaty governments). This information might relate
to employment contracts, personal sponsorship applications, loans,
credit card applications, apartment or villa lease agreements,
liquor licenses, corporate or partnership filings and yes, even
entry and departure dates from the Emirates or Kuwait. In other
words, both tax and immigration officials will soon be able to
cross-check the amount of time the permanent resident and his
family actually spent in the UAE or Kuwait with the time declared
on their PR Card or citizenship applications.
It is common knowledge that the information contained in these
government documents and computers alone cannot determine, with
any degree of precision, the exact amount of gross taxable income
and benefits the Canadian permanent resident may have earned in
the UAE or Kuwait. However, information about the person's standard
of living in the Gulf, when combined with readily available Canadian
information can be used by the CCRA for a lifestyle and income
audit. If this audit indicates that the person is living a lifestyle
substantially richer than could be reasonably supported by the
income claimed on his tax returns, then he will be re-assessed.
In the event the CCRA's assessment is higher than the income previously
declared, the taxpayer will be asked to pay the additional taxes
and interest. Depending on the severity of the under-reporting,
he may also be fined and assessed penalties of up to 50% of the
taxes owing. Interest will continue to accrue until the total
amount is paid. Under reporting could also result in criminal
charges for tax evasion that could cause the person to be stripped
of their permanent resident status and even citizenship (for those
who have already reached this desirable stage). As previously
stated, being found guilty of tax evasion will make the former
permanent resident or citizen inadmissible for subsequent sponsorship
for a very long time.
The taxpayer is entitled to dispute and appeal the CCRA's income
assessment. However, he would first be required to pay the assessment,
either voluntarily or by seizure of his assets. The appeal process
itself will require substantial amounts of time, energy and credible
documentary proof (which can now be more easily challenged with
information obtained under the Tax Treaties.)
Summary
Introduction of the Permanent Resident Card and the new Tax Treaties
with the UAE and Kuwait should be not be taken lightly by those
permanent residents who have not taken all the important steps
to establish their physical presence in Canada or by those who
have not been entirely forthright in their disclosure to tax and
immigration authorities.
As these two tropical storms continue on their set courses to
merge into a hurricane, they must be considered very seriously
by all permanent residents in order to protect those who fall
under their care and responsibility.
Recommended Steps Permanent Residents of Canada
Should Immediately Consider: 1. If you are a permanent resident and eligible
to apply for Canadian citizenship, do so without delay. However,
confirm beforehand (with your tax accountant) that all previously
filed tax returns for you and your spouse fully disclose all your
non-Canadian source income. 2. Evaluate whether you and all your family members
will be successful in your application for Permanent Resident
Cards. If, based on all these new requirements, you and
your legal counsel (and accountant) determine your application
for a Permanent Resident Card would be unsuccessful; you should
identify those areas that require attention and take the necessary
steps to rectify them without delay.
THE STAFF OF GLOBALRELOCATE.COM, INCLUDING OUR LEGAL EXPERTISE
ARE AVAILABLE TO WORK WITH YOU TO RESOLVE CONCERNS OR POTENTIAL
CONCERNS.
PLEASE CONTACT THE DUNDAS OFFICE TO START THE
PROCESS.
E-mail information@Canada-Relocate.com
OTHER WEBSITES – David S. Lesperance,
Barrister &Solicitor
www.GlobalRelocate.com
Immigration & Citizenship needs
www.UsnonFilers.com
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