DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

WHAT’S YOUR TAX ISSUE?: OFFSHORE EMPLOYMENT

In Canadian Income Tax, Tax Avoidance on September 17, 2009 at 5:26 pm

The Tax Issue:

I was wondering If I earn money offshore and do not repatriate any of it back to Canada do I have to pay tax on it. (i.e. Work, Investments, etc…)?

The Answer:

The short answer is YES!

With all the talk recently about UBS, offshore bank accounts and tax evasion, this question comes at a crucial time for any Canadian taxpayer with funds offshore.

Generally, if you are a Canadian resident, you are obligated to declare and pay tax on your world income. So, if you go off to Dubai and earn revenue as a systems consultant there for a few weeks, deposit the funds in a Swiss bank account and never bring the money into Canada, you are still obligated to report the income earned on your Canadian income tax return for the year.

Similarly, any investment income earned while that money sits in an offshore account is taxable in Canada as it is earned.

If the income is from employment, and you meet certain criteria, you may be eligible for an overseas employment tax credit to be deducted on your return. You should consult your tax advisor if you were employed on a long-term project offshore at any time in the year.

The Canadian system operates on the basis of residency alone. So, if you leave Canada permanently, you will no longer be subject to Canadian income tax from the time of departure. As a non-resident you will generally not be subject to tax in Canada, even if you are a Canadian citizen.

So, if you’ve read my previous post on the UBS affair and how it affects us here in Canada, you should be aware that any funds deposited in any offshore account that contains proceeds from taxable earnings you derived while a resident of Canada is subject to the scrutiny of the CRA at any time.

Update: See the case of Bensouilah v. MNR (2009 DTC 1327) for an illustration of Canadian resident taxpayer failing to report employment income earned in Saudi Arabia.

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