Moving abroad can be a romantic thought. A new culture and a new language. Different foods and new friends.
Moving abroad also opens up a new set of legal and tax requirements both in your home country and in your new one.
When we first moved to Ecuador, our family was on a temporary visa that needed to be renewed every two years. At the end of our first two years in Ecuador we decided to apply for a permanent visa which would give us permanent residency. This visa does not need to be renewed or apply for again – thus the word “permanent”.
When we first moved to Ecuador, we submitted a request for determination of residency status to the Canadian government to make sure that we were fulfilling our tax obligations. As we were deemed to be a non-resident in Ecuador the Canadian government then deemed us Canadian residents, as we needed to be residents somewhere.
As a result the Canadian government decided that we still qualified for certain benefits, including the child tax benefit which we received up until we got permanent residency here in Ecuador. Just a few weeks after we received permanent residency last March, we again sent the request to the Canadian government for determination of residency status. The form in Canada is known as the NR73.
This four-page extremely-detailed form helps the International Tax Services Office in Ottawa determine what our status and thus our obligations in Canada will be.
Of course they ask questions such as where home is, where the majority of our belongings are, if we continue to have Canadian health insurance, etc. But they also cover things such as investments remaining Canada, mailing addresses (like a PO Box), magazine and newspaper subscriptions, and even the type of cell phones that we have here in Ecuador.
The issue that seems to be confusing our request the most, is that we continue to own a Canadian business. Because all of our work is done online, almost everything we earn is billed through our Canadian company. Until now, we have only paid tax in Canada – but our new residency status in Ecuador is calling that into question.
I have been waiting for our Canadian ruling before I speak with tax lawyers here in Ecuador (to determine what our tax requirements will be) because the first question that they are going to ask is: “What’s your status in Canada?”
Since sending the initial request for the determination of residency status, we have sent a clarification letter and spoken with them by phone many times. After almost one year of waiting, I’m told that we should expect something later this month.
Why Go Through The Hassle of a Determination of Residency Status?
We could make a self-determination, but if it was wrong we could be looking at a humongous tax bill including penalties, fees and interest. For me, the legal ruling will give me peace of mind, knowing that when I return to Canada they won’t arrest me and put me in prison for tax evasion. Worst case, of course – but who wants to deal with that on a vacation home…
A Surprise Tax Bill from the Canadian Government
Shortly after sending in the initial request for determination, we received a bill from the Canadian government for almost $8000. When I called them to clarify, they told me that this was an automatic letter/bill that doesn’t need to be paid or even worried about until the determination/ruling is made.
Apparently as soon as an individual’s residency status is called into question, everything is put on hold – and past payments are requested – all automatically by their system. So for the past 10 months, we have been nervously awaiting the ruling.
So while we await the ruling from the International Tax Services Office, I thought I would share our little story with you – to help you know what to expect when you go through it.
Residency: Isn’t That Where I Live?
The issue of residency is an interesting one. While you may say that you reside in a certain city or country, that doesn’t mean that you’re a resident there. At least not according to the government. From what I’ve learned during this process there are (at least) three types of residents:
- actual/factual resident
- legal resident
- deemed resident
So for our first two years in Ecuador we were actual residents, because we lived here – but deemed residents in Canada because we had a temporary non-resident visa in Ecuador. Meaning that while we actually lived in Ecuador all of our legal and tax responsibilities were to Canada.
And while we are now legal residents (and actual) in Ecuador, the Canadian government has told me that we may be deemed residents in Canada as well. This means that we may retain certain benefits and also tax obligations back home.
If you sort out fairly quickly, this isn’t something to worry about. If you’re receiving benefits from your home country and your legal status has changed, you may not be eligible for them anymore. The best case scenario is they will simply ask for repayment of the benefits when they find out. Worst-case scenario, well… let’s not go there.
What has been your experience with residency and expat tax issues?
Does it work the same United States, England and Australia (and other home countries)? I would love to hear how you handle these issues as an expat.