Canadian tax discussion

Further to SunFan's query (of 2 years ago). My wife and will move from Canada to Ajijic full-time in July 2015. We will have taxable income from RSPs in Canada.
As full-time residents of Mexico, are we obligated to pay Mexican tax on Canadian taxable income?
Does it make a difference whether we keep Canadian tax residency, or declare ourselves non-tax-residents of Canada?
BTW, I think Mexican tax rates are higher than in Canada.

Mexico has a Tax treaty with Canada. Taxes are only payable in either country but not both.

Thanks Bob. So I interpret that I can live full-time in Mexico, but keep my tax residency in Canada and pay only the Canadian taxes.

My Canadian tax advisor for expats (who advises only on the Canadian side and does not comment on Mexican taxes), says if we give up our Canadian tax residency, Canada will deduct 15% witholding tax from our RSP, CPP, and OAS payments, and then I might have to pay Mexican tax on top of that.

(We might see you in Feb, as we are staying at the B&B next door.)

farndale wrote:Thanks Bob. So I interpret that I can live full-time in Mexico, but keep my tax residency in Canada and pay only the Canadian taxes.

My Canadian tax advisor for expats (who advises only on the Canadian side and does not comment on Mexican taxes), says if we give up our Canadian tax residency, Canada will deduct 15% witholding tax from our RSP, CPP, and OAS payments, and then I might have to pay Mexican tax on top of that.

(We might see you in Feb, as we are staying at the B&B next door.)

the only tax you will have to pay in mexico is if you work here or have a revenue property and you will only be taxed by mexico ONLY on that and not your other incomes outside of mexico.
we get taxed as a "factual resident" of alberta so that we can deduct our medical expenses and don't get automatic deductions {15%] from our cpp and oas. see if being a factual resident is to your advantage. if it is,you will have to file every year.

nice canoe farndale. i used to have a custom made langford many years ago



nice canoe

farndale wrote:Thanks Bob. So I interpret that I can live full-time in Mexico, but keep my tax residency in Canada and pay only the Canadian taxes.

Yes, and as Pedro pointed out, if you earn any income in Mexico you would pay the taxes on that income here, but not in Canada.

Come on over for a visit in February.

You should also be aware that CBSA is sharing info with CRA as of June of this year, so your time out of Canada will be accurately measured.
Being out of Canada for more than 6 months can allow CRA to designate you as a "deemed non-resident" and subject you to the 15% tax rate.
This is a complex situation, which has become even more complex due to the information sharing by the two agencies. (BTW the same now applies in the US).
I am currently in the process of re-assessing my own position, and that is one (of several) reasons why I am now back in Canada this summer.  

it is well known by cra that we have been living permanently in mexico for almost 8 years and as i said they have officially deemed us "factual residents" in writing so i don't see the relevance of the cbsa in this matter.

Pedro wrote:it is well known by cra that we have been living permanently in mexico for almost 8 years and as i said they have officially deemed us "factual residents" in writing so i don't see the relevance of the cbsa in this matter.

This is a new development. If you have "factual residency" then you are OK, but if you are in the process of establishing your tax status, it is something that you need to be aware of, and take into consideration.
Just trying to provide as much info to folks as I can.  

Pedro wrote:it is well known by cra that we have been living permanently in mexico for almost 8 years and as i said they have officially deemed us "factual residents" in writing so i don't see the relevance of the cbsa in this matter.

This new partnership with the CBSA and the CRA is mainly to find and kick people off their provincial medical plan from what I have been told. There are ways around the 15% non-residency withholding tax if you earn (or withdraw) less than 40K per year (for 2 people). Get a good accountant......

Ditto CB's good accountant bit. We have been dealing with our's for 15 years. 15 YEARS. Good Accountants keep you out of tax trouble, especially, if there is a track record over time with all your stuff/shit. At the end of the day they are also cheap. I was charged $C85.00 for my personal tax year end. Corporate - $1500.00. Corporate wise my wife's biz was half that because she presents a set of books. I am too freaking lazy and punished for that. To my good, I save all receipts, I mean , all receipts. There is a market for receipts in case you didn't know. Jajaja.

I have been using the same accountant for almost 30 years.

The US does have a Earned (Job) income tax credit with Mexico but UnEarned income like dividends and interest are owed in both countries. However you can make more money in US than Canada without paying taxes and our deductions are more generous and silly like being able to write off a sailboat. In Canada you can't even write off your mortgage on a house. I do think Canadian taxpayers may pay more but they get more compared to US. I have lived in both countries.

Z

In Canada you can write off the interest on the mortgage for revenue property (like a rental house) but not your primary residence. If you have a rental suite within your primary residence you can write of the percentage of the interest that your suite occupies within the property.

In US if you have a place to sleep, place to cook and a place to go to bathroom you can write off the interest. So Sailboat, powerboat, house, cottage, RV, Van interest can be written off. Many folks also borrow against the house and can than use the money to buy an big pickup and write that off even though a pickup truck doesn't meet the requirements I described. Glad to hear Canadian rentals can be written off. Kinda wondered about that. Boy you Canadians must have a heck of a party when you pay your mortgage off!!

Z

As a non-resident Canadian you can a) file a detailed tax return, claiming deductions or b) pay a flat 15% on all pension-type income (other earnings e,g rental income, dividends, interest is at 25%).

With pension type income only, the break even point for an individual last year was about $42,000 annual income. More than that take the 15% route, less go for the detailed filing.

I can only comment on pension type income as I live on RRSP investment dividends and CPP and OAS government pensions.

Pedro...CBob agree????

SunFan

I am not a "non-resident" so I haven't investigated the pros/cons yet. I plan on looking into this next year with my accountant.

we file as factual residents and can therefore deduct all our medical expenses including dental and drugs. the tax treaty with mexico as a total nonresident for tax purposes is 15% period. that 25% is other countries, for example if you moved to germany. so relax sunfan.
if yer in that 15% thingy you cannot deduct anything-just pay the 15%.
interestingly enough a cra guy told me 9 years ago-hey - we have no way of knowing what income you get off shore-nudge, nudge. made me feel like bronfman even though we ain't got an account in the carib-SNORK!

Pedro You know I'm always relaxed.

Check your facts. File a detailed return if you are in a lower tax bracket. Take the 15% route if you're rich like Pedro and can afford vintage motos and cheap Tequila.

Take care my friend

SunFan

Here is a link to a Financial Post article about the partnership between the CRA and CBSA.
http://business.financialpost.com/2014/03/11/border-shakeup-could-have-tax-consequences-for-snowbirds/
I make trips to Canada a couple of times a year, and I do not like the implications of what this partnership could mean.
Call me paranoid, but   

zenwoodle wrote:Here is a link to a Financial Post article about the partnership between the CRA and CBSA.
http://business.financialpost.com/2014/03/11/border-shakeup-could-have-tax-consequences-for-snowbirds/
I make trips to Canada a couple of times a year, and I do not like the implications of what this partnership could mean.
Call me paranoid, but   

Yer Paranoid!!   

It is always interesting to hear "armchair tax experts" providing the latest "Canadian Tax Rules". I only wish make sure you know the proper rules.

I'm not going to say who is wrong and who is right. I have been a tax preparer for over 20 years and as a permanent resident of Mexico I am now providing tax advice and preparation to Canadians living here.

Taxation is an ever changing world and and if you heard it last month it may not be relevant today.

Canada has a tax treaty with Mexico which many of you are ignoring.

The latest treaty was signed on September 12, 2006:

Article 10 provides that Dividends paid out of Canada to a resident of Mexico may be taxed by Canada up to a maximum of 15%

Article 11 provides that Arm's Length Interest  paid out of Canada to a resident of Mexico may be taxed by Canada up to a maximum of 10%

In December 2007 CRA issued the following amendment:

Major changes to paragraph 212(1)(b) – Elimination of withholding tax on arm's length interest paid or credited to non-residents effective January 1st, 2008.
Prior to the amendments, paragraph 212(1)(b) was structured so that interest payments were taxable, other than those set out in a series of subparagraphs. In a significant revision of the non-resident withholding tax, paragraph 212(1)(b) of the Act was amended.
The new provision exempts from tax any interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at arm's length, other than those payments ("participating debt interest") that are in effect a distribution of profits or the like. As well, interest on certain debt obligations ("fully exempt interest") is exempt even if it is paid to a non-arm's length person or might be considered "participating debt interest". This retains an important aspect of the previous rule.
Interest payments that a payer resident in Canada makes to a non-resident recipient with whom the payer deals at non arm's length will be taxed at the statutory Part XIII tax rate of 25% or the reduced rate of Part XIII tax eligible under a tax convention between Canada and the beneficial owner's country of residence, where applicable.


Where is this 25% that some of you residents of Mexico quote? It is what happens if you live in a non treaty country

As I indicated earlier, last year's tax rules may not apply this year and vice versa. It is very important to be up to date when making statements about taxes. That is why there are tax consultants (preferably one with Canadian non resident taxation experience) also if you use an accountant make sure he is very conversant with Canadian/Mexico Tax laws and if you use an investment adviser make sure he/she also is conversant with Canadian/Mexico Investments.

I recently saw 2 non resident Canadian Tax Returns prepared by CPA's in Canada. Both had glaring errors. You may think your accountant knows all about non resident tax returns but your actual return is prepared by a clerk in his/her office and may not be thoroughly checked.

If any one would like an honest tax appraisal please PM me and I will set up a time to meet.

BTW all world income is taxable in Canada. I entered $10,000.00CND onto my Canadian non resident return and found out it was going to cost me about $1,600.00CDN in tax! That is why we have to file our "World Income Statement". Canada wants more tax.

our tax consultant is my charming wife and things have worked out just fine so far.
we both were involved in the beginning of getting determined as factual residents. numerous phone calls and correspondence with cra people who mostly were quite helpful.
sometimes one must not accept what those frontline phone info canada people tell you because a lot of them know diddly so you must persist until you can get a # for someone who does know. recently i spent a coupla days and a zillion phone calls to overcome a certain problem with my cpp.

I highly recommend Dave P. to do non-resident Canadian tax returns. He's done mine for the past 3 or 4 years and I'm happy with his quick, efficient service. He knows what he is talking about.

IRS (USA) tax study showed that looking at 20 different trained tax folks that they came up with 7 different answers with the same tax question. I hope Canadian Tax Code is not so confusing but I doubt it. For US folks we find turbo tax to be a wonderful thing. It even brings in all those 1099 forms automatically these days so you don't have to wait for the paper ones to come in snail mail. We find turbo tax covers all but FBAR treasury form due in June. Some folks would still need a tax preparer but most of us only need turbo tax these days unless you have something tax wise very strange indeed.

for our canadian income tax purposes there is no relevance to usa tax info so could you please start another thread if your wish is to discuss the us system. the op is a canadian and the name on the thread is "canadian tax discussion". which most of us are adhering to.

TurboTax has a Canadian version fot the DIYer.