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VOICE-OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
DERREN JOSEPH:
Good afternoon. Good evening. Good morning depending on what part of the world you are. Welcome to our live stream online. And this is HTJ.tax, and we do these live streams every week where we pick a jurisdiction or a topic that would be of interest, especially to those who are international. So, they exposed to more than one jurisdiction. And today we have the honor of being joined audio only by Ms. Roslynne Flacks. Roslynne, would you like to introduce yourself, please? You would need to unmute yourself if you’re speaking Roslynne. Okay. I think they may be some technical difficulties. I’m going to ask her to let me, there you are. We can hear you now. There you go.
ROSLYNNE FLACKS:
Hi everyone. My name is Roslynne Flacks, I’m in Toronto, Canada, where it’s still warm and we’re still at home and it’s still masked. I’m a CPA with a Master of Science. My first love is Quantum Physics. Accounting comes second, tax comes up far distant to hundredth level. So, I’m happy to be meeting you all. Sorry, I have a new computer and I don’t know my camera’s not working yet. So, I apologize for the blank screen, but it’s nice to meet all of you.
DERREN JOSEPH:
Okay, fantastic. So, well, after Hannah sent out the link to join on the live stream, I sent an email asking, inviting some of you to submit your questions. Of course, this is not a forum to give legally binding advice. What we’ve done is we’ve taken the emails that you’ve sent in. And thanks for sending those. And we pulled out like the general principles and general topics. So, we just have like a brief discussion around the issues that you guys raised.
If it is that you want what we call like actionable intelligence, or you want actual advice, then you would need to engage someone. And that person, you take a deeper dive into your situation, that you can get guidance that is relevant to your unique circumstances, right? So just, just letting you know, this is just a general conversation about general principles. This is not advice, right? And as you are also aware that this is being recorded.
So, if it is, you do not want your image to appear, feel free you can just turn off your video, video stream or turn off your camera. We go through the questions that have been submitted in advance. And then in the end, if we still have time, we will go through the questions that you have provided her this evening. So, if something comes to mind, feel free to type in the box below just type in the box below and we’ll get to it in the order in which we see it.
Okay, great. So, the first question, and thank you for sending listen is how I sever or cut tax residency with Canada when I moved abroad, when I moved to new country. So how do you do that? Roslynne?
ROSLYNNE FLACKS:
Okay. With great difficulty since Canada has gone into great debt. And so, they’re trying to keep everybody as paying taxes in Canada. So, you have to really construct this, that the first issue are significant residential ties with Canada. The first thing they look at that would be owning a home in Canada. You just, as an aside, if you do own a home in Canada, they don’t force you to sell it.
You can rent it. The main thing is not to have unlimited access to the home so you can rent it. You should have a long-term lease that you can show them if they come to look and, or you would put on, you know, when you’re telling them, when you’re describing your significant, your lack of significant residential ties with Canada, and you would bring that out new wood. Another thing would be if you leave any dependents in Canada, spouse or common law, common law, or regular spouse, children, dependent children or dependent elderly parents or anybody that’s dependent on you. Those two items owning your own home and dependents are that, if you checked any of these boxes, they would likely consider you to still, what they call a factual resident. Even if you’ve left, even if you were away more than if you were away from Canada, more than 183 days or more than half a year, this would still be enough to make you a factual resident and taxed as a Canadian resident. In Canada, we are taxed on residency whereas you have countries like the US where you’re taxed on citizenship, Canada doesn’t care about citizenship. They care about residency. Then if you do not take any of those block boxes, you can still get pulled in because they look at second, what they call secondary residential ties. And there’s a whole long list. Things like if you leave personal property in Canada, car furniture, clothing, jewelry, you know, anything really valuable.
If you maintain a mailing address in Canada, if you have social ties in Canada, like memberships, recreational memberships, or religious memberships, you’re pulled in. If you are even adult non-dependent children, are a factor. Although not like the dependent children. Another issue is economic ties to Canada’s things like Canadian bank accounts, credit cards, retirement accounts, even though you’re allowed to, you can be a non-resident and still have retirement accounts.
It’s still a factor in your residency status, investment accounts, brokerage accounts, driver’s license, and passport, which you wouldn’t want to give up health insurance in Canada. Or if you’re involved in looking for any of the health insurance to continue, the other things would be, they do. They do look at the actual physical stay in Canada, the hundred pages a day, a substantial president’s presence role.
But that by itself alone, isn’t enough. It’s just another, it’s another factor, a strong factor, but another thought. And then they also look at your intent. When you tend to come back, they look at the object of what you’re doing. Your, I just leave in Canada for a few years as a temporary. They’re just doing it because you have a contract, and you don’t want to pay Canadians exorbitant tax rate of over 50% and just in general continuity.
So those are some of the things that CRA looks at. But so, if you’re deemed, if you’re deemed to be a factual resident, which we went over, all of those ties, other things that can get caught, not expecting to things like take, like you could be temporary. If you’re teaching outside of Canada, if you are vacationing outside of Canada for a long period, you have to watch it. Even though you would think that the vacation is nothing, it it’s still proven as an actual resident.
If you’re compete, commuting, you know, for business that can still pull you in back and forth. We have a lot of clients who are teaching her professors and they can be teaching in two countries. And it may have a heck of a time because both countries want to tax to them. And of course, they don’t want to be taxed and counted because the tax rate is higher. If you’re attending school outside of the country, you can get an exemption.
The one thing, if you’re a missionary, you can get, we can get exempt from this. You’re allowed to be a missionary. If you meet certain requirements and not become a non-resident and not become, not the program, otherize wise, you can be, you can still get to a resident if you have no significant ties. And you’re here more than 180 days is a class called a deemed resident, which you can get pulled into. What we found the pandemic has sort of changed everything.
We found that, that, whereas before I love that the government seems to be pushing towards try, obviously trying to keep people dependent in Canada. It’s also taking them over a year sometimes to give you your results. So, a lot of people are being left in limbo. They don’t know where they’re at, because technically you can’t go ahead and file to get your residency status and they can take up to a year to come back to you.
There is a form you can fill out. It is optional. It’s called a form NR73 determination of residency. I would highly recommend anybody filling that out. That it’s done. We usually work with the law firm as well as ourselves because you want the solicitor client privilege. And you want to be able to basically tell the lawyer that, you know, the whole situation. If you tell it to us, we don’t have solicitor client privilege. So, you know, you want to be very careful how you handle that and anything like that, especially if you’ve got a situation where it really makes a difference what the date of your residency is.
Like, for example, if you’re, let’s say you have a business that all of a sudden took off because of the, an online business, it took off because of the pandemic. If the valuation in two years is way higher, you know, as the government, they want to call you a resident later so that they can pick up the capital gain. And although, and if you’re not eligible for the exemption, you could, you know, you could, it could really matter. So, you have to be very careful. That’s about, so if you want to separate, so the answer to come around to your question was, if you want to sever ties with Canada and you want to stick, you have to look at everything, all your things that you wouldn’t even consider, like, you know, people often store clothing, you would try and untick as many of these boxes as you can so that you would get the result.
And if it’s really matters, I think he should, we recommend you fill out that NR73 and work with a CA and a lawyer to get a CPA and a lawyer together so that the CPA can, you know, guide the lawyer. But you have some Mr. Client with the BME, anything further to that question?
DERREN JOSEPH:
No, thank you very much. That was super comprehensive. And it does remind me, okay, sorry, I’m getting a little bit of a feedback, so I’m just going to okay. And it reminds me of the center of life tests that we see in, in Europe. And I guess a large extent the other Commonwealth countries like UK, Australia, New Zealand, and stuff like that. That’s pretty good. Thank you very much for that. I think that covers all the bases.
So, the next question, and kind of follows from that is if you’re working abroad, doing whatever you’re doing, is there any advantage to remaining Canadian tax resident, even though you’re abroad and you can, as per your guidance earlier, you can sever ties so that you’re not Canadian tax resident. And is there an advantage to remaining so even though you work in abroad?
ROSLYNNE FLACKS:
Before I go to answer that, I wanted to introduce one of my associates, Katherine, she’s on. Katherine Dalton Adams. She’s an FCCA from the UK, are trained in the UK and she’s with us. And you can probably see her picture because she knows how to work her computer. And she’s amazing. Okay. So, to answer that question, which is the flip side of the other question, of course, some of it is obvious and not necessarily tax-related our healthcare system, which has it’s good and it’s bad.
The good is obviously we don’t pay for it. We can’t be bankrupted by a serious illness that is sometimes the waiting lines are really long. And of course, the COVID through our whole system for a loop. So that we’re backed up about three years for our operations. The good thing is, though, if you’re a Canadian, if you have a Canadian passport, you can always come back. If God forbid, you’re out sick, right? So, the healthcare system of course, is very important.
Another thing that we should be aware of, if you’re over retirement age, the count of pension, you can take with you, it’s portable. So, you’ll still get paid no matter where you are, but the old age security rules are different old age security. I think they pay it for six months. And then after that, there’s a test and the test is related to how, you know, were you born in Canada, if you work in Canada, let’s say you were here 40 years. I mean, you were, only in Canada for 20 years of your age.
They look at, I think if you look at a 40-year period, so if you’re only here for 20 years, you would only get half of it after six months. So, if you’re dependent on your OAS, you have to take that in consideration because they claw part of it back. If you become a non-resident so that’s that. Of course, the disadvantage again, is, are very high tax rates. Although the UK has pretty high tax rates, the US is of course, much lower than, quite a bit lower.
Although I think that’s going to change something, has to pay for all the things for that two minus $2 trillion infrastructure bill and whatever. I imagine that US tax will go up, but ours are over 50%. Once you make a tunnel, I think it’s 125,000. It starts to be like that. And there’s a surcharge as well. I don’t know if they could raise ours anymore. And since you have to work more than half a year before, before you can keep any of your money, but at the other major, things are more subjective.
We have a strong employment market. Now we need people, our healthcare, which we talked about, we were a wonderful multicultural country. We have a low crime rate. Well, not so much in Toronto, but we do. We have terrific social programs. Our programs for COVID were much stronger than the U S like that we really supported our people. We, I w it was amazing how much support there was and still is. And that should all, you know, these are subjective things, but still are important.
We have a great education system, although it’s expensive. We do have a student phone may have natural resources, you know, terrific, right up, right outdoors. The country is pretty respected that some other countries are not so respected where we, except for China, doesn’t like us very much right now. But other than that, everybody’s, you know, it’s pretty respected. We have a good reputation other than that.
And the con the cons are getting the tax rate, the house system. And we have a lot of government control here. So, if you don’t like government control, you, wouldn’t like Canada. And our cost of living is pretty high. So that, I think that answers there, there isn’t, it depends. I think it depends on how old you are a lot, you know, and, and what, you’re, why you’re needing a, there’s a lot of misnomers. The other thing you should be aware of when you’re leaving is that the whole world is getting together to stop the, the tax statements like Panama and all these places where there’s no tax, all the tax savings all over the world are, they’re already reporting.
It’s just a few places that are left and they’re fairly blacklisted. So, you’re not in the long run. I don’t think the low, the no tax things will last, I think but then again, it always come back. They don’t penalize you for coming back. They welcome you back. So, you can keep paying taxes here. So, I think that the situations and the whole nomad situation, which is a whole, the nomad, it’s like a, what do you call it sort of a force in the world for is going to be relatively short-lived maybe five, a few years.
I think everybody’s going to be taxed. The world is moving towards that. The G20 with the G27, they’re trying to walk that, you know, change it. So, with this minimum tax everywhere. So, you should take that into consideration when you make these kinds of changes. I can’t think of anything else.
DERREN JOSEPH:
Again, that’s spot on as well in the sense that if it is you’re looking for an opportunity to go somewhere and be zero tax. I think once you are working, and if, I mean, if you are doing, I guess, like a manual labor, maybe that’s flying under the radar, but once you’re doing something substantive, then, you know, and you participating in the banking system, there’s automatic exchange of information, otherwise known as a common reporting standard.
So, governments are speaking to each other they’re trading information. And so, you know, being off out of the system is it’s becoming next, next impossible. And, and to, to the quest, to the point that the person I guess, was looking for and asking a question, when you sever tax residents with Canada, if we’re understanding you correctly, I mean, do you would lose access to the social system and the social benefits that come with being a Canadian tax resident, and especially when we’re going through uncertain times and you know, the level of income support and so on it, it won’t be available to you anymore. So, it’s just something to keep in mind. Yeah. So, yeah. Thank you for that. So going on.
ROSLYNNE FLACKS:
Sorry, just a couple of things, which I think are important because I, we, spent a lot of time in our practice servicing nomads, right? And people should be aware. I have a secondary business. I have two partners in international finance. One of my partners is a former international attorney and bank central banker. And so, he has a real pulse on the world, and it has over 30 years’ experience.
And I’ve been in it. I’ve been doing this well on eight years, the international finance, it’s a different world out there. Then Canada is very, almost prudential in a way in the way that it conducts its business. And what they’re seeing is the move to the digital economy. They’re telling us that the fit system is it’s going to be very short-lived. It is cash, you know, notes. And that, that there is a move all over the world to basically crush the digital system and get rid of the underground economy.
Because in Canada, 50% of our earnings are underground. They aren’t taxes are not paid. One of the reasons our rates are so high in Canada and the US and basically in the Western countries is because of the underground economy. So that you’ve got only half of the people paying taxes. In the US I think that there was a thing where only 47, 45% pay federal taxes. And in Canada it’s worse, we have 50% that don’t pay.
They don’t pay sales tax. They don’t pay federal taxes or corporation taxes. That means that the revenues were only 35 million people. So that leaves the other seven. And a lot of them are children, right? So how many people are really supporting all our systems that, you know, all the different things that the government has to pay for the world is moving against this because it’s, it’s causing tremendous inequities. And so, people who are making these plans should be aware that the digital system is the system is on its way.
And the digital system is fully trackable. And we think all the countries are moving towards their own digital systems. The US China already has their own digital system. The US, Canada, it’ll take maybe a few years, but US is pretty close. I don’t know what that’s going to do to things like Bitcoin because Bitcoin has soared. You know, whether it will survive once the countries, because it’s not trackable, right?
But other than that, the cash system is leaving. So, we need to be aware of that when we make plans and move our businesses offshore, that it’s probably going to be short-lived. And that, you know, you really have to look at quality of life, you know, and you can be aggressive in your taxes, but you know, you can’t, you can’t cross the line obviously then again, you can always come back. Whereas in US, I think you’re always taxed on with, you want to get your us passport your tax forever.
And how do we do that? You keep your passport, it’s a, it’s a factor, but it’s not going to, you’re just keeping Canadian passport and nothing else. That’s not going to be a factor and people if you were born here, if you weren’t born here, you should hang on to that Canadian passport for DUI. Okay, go ahead. Sorry.
DERREN JOSEPH:
No, think that’s great, 100%, and I think anyone involved in international tax space, like we are too unhealed, but agree with you 100% that the shift to the digital central bank currency system means that every transaction will be trackable. So, it’s for those who are not fully compliant with the taxes, some in Canada or wherever else they’re exposed to, they need to get their act together because it’s just inevitable. And I think that’s a great segue into what I’ll do is I’ll jump down to question number five, and then we can come back up to question number three after. How does Canada tax cryptocurrencies right now?
ROSLYNNE FLACKS:
Okay. So, cryptocurrencies in Canada are commodity because they’re not a security. They’re not governed by the central bank of like. The bank of international settlements, all of the central bank’s report to the bank of international settlements in Europe and the Bitcoin, or not just the coin, all the cryptocurrencies, because Bitcoin is only one of them, right. Although it’s the one that everybody thinks of. There’s a three and there’s all kinds of them.
They, they considered as a commodity, like any, like, like any commodity sugar, anything like that. So, you have, you have an inventory of it if you’re in the business, right? So, it’s considered a commodity, it’s taxed a hundred percent, but I mean, not as a capital gain, it’s taxed as a, as any other commodity would be, you know, income, sales versus cost. So, if you, if you buy it and then dispose of it, you’re taxed on a hundred percent.
So, if you were one of the lucky ones who bought it for a dollar, when I did turn it down, because I thought it was not, and now it’s 60,000, 60 something thousand, you’re going to be taxed on the whole 60 something thousand. I did really turn it down. It was all there. I thought it was nuts. I remember when one of my, one of the kids brought it to me and I thought, what are you crazy? It’s not based on anything. Why was I wrong? Anyway? So basically, it stacked as a commodity.
The only time it can be taxed as a capital gain, if you don’t do it very well, if you don’t do it as with the intent of making money, if it’s just, if you just start to come across, come into it accidentally, like, for example, let’s say you have a lawyer who agrees to accept that coin. So, let’s say his bill is $5,000. And so, he takes Bitcoin for $5,000. He takes a tiny piece of the Bitcoin and will record in his taxes, the 5,000 econ, because he converted basically diverted at the, at the time, at the time that it’s, that the invoices that the services rendered basically any waste.
And then now let’s say that lawyer doesn’t, he forgets about it. He’s, you know, he forgot he had a wallet open, and he remembers the password or whatever. And he forgets about it for a year. And that year it doubles. He would have an argument to say it was, he had no intent of buying that corner, investing in cryptocurrency. It was an accident. It just an oversight. And he should be allowed to it’s about a capital gain, which would be half of the tax.
Somebody that actually happened. The government went after him and the government lost, but even one isolated incident, if you meant to make a profit, bring it into being a commodity and fully taxable. So, you have to be really careful with, so I think that’s it for her it’s text.
DERREN JOSEPH:
Okay, fantastic. Thank you for that. So, I’m going to go back up to the biggest question in the list. So as a foreign investor, what’s the best way of investing in Canada real estate? Should it be a holding company structure? If so, which jurisdiction should it be in my own name? Or what are your comments and thoughts on that?
ROSLYNNE FLACKS:
Just that question, you often, that’s a broad question because you have to know a lot of facts. In other words, the foreign investor, what country are they? What, what, where what’s their passport and, what’s their residency. You have to know that. And you have to know, I would say generally, it’s always better to own through a company. I don’t like owning real estate personally, because especially that also depends on the type of real estate. Are you investing in residential?
Are you investing in commercial in Canada? There is a negative, there’s a, there’s a tax on, in, in British Columbia and Ontario. There’s certain, mostly in Vancouver and in Toronto and Montreal, I think as well, there’s a 15% tax and, or in BC, it’s 20% on. I think it’s something on residential. I didn’t see any evidence that his on commercial, they didn’t want speculation in the residential market and the costs, you know, they thought that that was what was driving the prices, but it, it, it didn’t work because our prices went up tremendously, even in spite of the tax.
So, it’s just, I’m just a big hip, 15 or 20%. Also, a lot of the foreign investors got around it by just having that, making a deal with the Canadian and having them by, you know, so there wasn’t, there wasn’t much compliance. I don’t think the government really made a lot of money from it and it caused a lot of problems. So, but I would say you should always own a company residential because of the exposure. You know, if pace there’s an accident or something now, as far as jurisdiction again, you know, if it’s offshore, they’re going to look at it more, more, more carefully.
If what, however, if you, however you own it, the problem is that by owning real estate in Canada, that gives the company, the foreign company, an S a permanent place in Canada. They, so that probably would bring you in under Canada tax, which may or may not be bad. You know, it depends. I, it’s a hard question to ask to answer in the, in general terms, you really need specifics.
That being said, Canada, the real estate market has been incredible here, and it doesn’t show any signs of, of changing. There is a, there was an announcement today that the interest rates are going to go up in April, but I don’t think they’re going to be able to raise some very much because they have to follow the rest of the world. And the U S and the rest of the world is not raising the rates. So, they, I think the rate, you know, if the rates start to go up, that could slow down real estate appreciation.
The residential has been very good. You can also, of course you can rent it. So, you’re getting income from that. And of course, you would have the problem with rent with rent is you’ve got withholding taxes. If the corporation is considered to be non-resident, then your tenants have to give, you have to pay. You have to pay the government 25%. And they’re technically supposed to issue an NR for two. So, you’re going to lose 25% of your revenues to the government. Plus of course, you’re going to have issues when, when you sell the property, but that’s, this is the case everywhere.
It’s not any different. I don’t think it’s any different in the us. I think you look at how safe is this money that you’re going to invest in Canada? What, you know, what is, what are the alternatives to that for that money? I believe in a balanced, balanced type of investment. So, you want somebody in real estate wanted in different countries. You want some money in, in, in different, you know, in-stocks or in bonds.
I’m I like bonds the bond market for the top banks. So, you know, that can, you can, you can look at something like that. You can look at treasury bills and the U S all of that interest rate, as well as you, but there were terrific investment, as far as they hold against inflation. That’s one of the solids just solid this investment. So real estate should be a piece of your portfolio, though.
It depends, but to get, to get any more advice or not advice, pardon me to, to just talk about this topic, you really have to be having, having a situation specific countries and specific people to see what the best way to structure this. I think there’s room, although our Canada is, is catching up. Hasn’t caught up to the rest of the world in our, in our values. We’re still a bargain, even though our, we don’t think so in the country, but outside, and especially with the Canadian dollar being so low, you can, your, even if you have to pay tax, the difference in, in the buying power of your currency, coming from the new S or Europe is so much stronger.
And then of course, if it’s coming from Asia and you’ve got, you know, the time that the tax Haven and panic has been a pretty, it’s a pretty solid country, as far as the way it’s managed. At least it was very now, we never had all this debt before, but, you know, I guess we’ll, you know, we’ll manage it. Our country has tremendous natural resources, which are not being developed and that we hope that’s going to change, and that may be, will offset the tax rate eventually. So that’s the answer. I think, I can’t really say more than that snippet, I don’t think.
DERREN JOSEPH:
Okay. That’s great. That’s great. And for those who have just joined us, cause like, yes, Alan, I’ve seen your question below. So, we just going through the questions that were pre-submitted first, and then we get to your question as well. For those who’ve just joined Roslyn, her, camera’s not working, there’s some technical issues, which is why you can see her, and you can hear her. So, people, you know, for those of you who were asking, yes, we’re aware of that. And for those of us, for those of you who joined us on Facebook, I’m seeing your questions. And again, we’ll get to them in the order in which we, we received them. So, thanks for your patience. Moving on to the next question we have, what a Canada is, control foreign court rules like?
ROSLYNNE FLACKS:
Okay, well, that’s an interesting question. There’s two, when you’re talking about CFC rules, there are, there’s two different streams here. One is the CFC rules, which are being brought in all over the world and where, something about what we already about a little bit as to what’s happening in the world. So the reason for CFC wrote rules are to prevent, they really targeted at multinationals, who with a lot of subsidiaries were making, who were taking advantage of the lowest tax or no tax, and, you know, not paying tax in their home countries.
And you can think about all the big ones, your Facebook, all of them are they, and legally, this is not illegal. There’s nothing improper about what they’re doing. This is they’re doing what they’re, they’re being aggressive, but they’re not crossing the line. They just have to change the roles. So, they’re completely in compliance, all the big ones, Facebook, all of them. What’s the Amazon, all of these guys, they’re all that. And that’s what the world is bringing in these rules. So that basically they can’t do this.
And that they’ll that their home countries will get actually not just their home countries, but all the world will get a share of their taxes instead of them just paying, you know, creating some, some, some subsidiary somewhere. So, the CFC rules in Canada is the same now where you, so it’s, it’s focused. It really was focused on the, on the, the big movers in the world of which there are tremendous, tremendous inequities and taxes, but it captured the small guys too, because it’s still the same rules.
If you’re a Canadian company, I’m sorry. If you’re an offshore company with subsidiaries, sorry, if you’re a Canadian company with subsidiaries, you could have one subsidiary that just does a little bit of business, but you’re still going to get caught by the same rules. So, and the rules are that they were going to want to get their fair share of the tax. Now, there is another issue to look at when you’re talking about foreign controlled corporations and that’s, you can have a foreign corporation, let’s say a Panama corporation.
That is the heart and mind is in Canada. So, Canada looks at heart and mind of the management of the corporation. If heart and mind is determined to be in Canada, that company will be taxed as a non-resident Canadian corporation. That means it gets the highest tax rate. It doesn’t get, which is about 35%, as opposed to the small business tax rate, which is less than half of that. So, if you get caught in that, and they really, they push that really hard.
They’ll look at whether the, where the heart and mind is that’s one. And so that’s one test where it’s heart and mind of the control of the corporation. The other test is permanent establishment. Do you have a physical presence in Canada? Is there an office? Is there a building? Is there a warehouse? And interestingly enough, or e-commerce businesses, digital businesses that are completely digital, which is an interesting thing. If the servers are in Canada, that’s enough to get to, to make your taxable.
And most, most digital businesses don’t realize that they don’t really think about where their physical servers are. I, I don’t know what if the us does that too. There’s a lot of the servers for these businesses and less, I don’t know if they pull it, but they also do the same thing, but Canada does. They’ll look at physically, you know, if you’re selling online, where’s your, where do you have warehouses in Canada? Where’s the fulfillment, where’s the logistics. A lot of the warehouses that are here because it’s because of our dollar and because it’s much cheaper here than anywhere else.
So that’s quite a question when you’re talking about foreign control and taxation. And again, we have to look at the specifics, but you have to really look at it because you can be caught on awareness and you know, the government can come at you four years later and you know, all this interest in, you know, if they come after you, you have to fight them. You have to pay the lawyer. They don’t, if they lose, they don’t pay your legal fees. So, you have to, you have to really look into that carefully, really examine your business, to see if there’s anywhere where you’re going to get caught in the Canadian tax or U us tax or anywhere else that you don’t want to be.
DERREN JOSEPH:
Absolutely. It does. And again, that’s a great segue into the next question, which is how e-commerce is taxed and generally speaking in Canada.?
ROSLYNNE FLACKS:
So, you have two issues with e-commerce. One is corporate tax, and the corporate tax is like, what we’ve discussed. In other words, we would look at where are the servers? Where’s the fulfillment, you know what, all that we sort of already hit on that it’s the same rules, really, but it’s not different e-commerce than any other type of business you look at. What are the ties to Canada view? It’s sort of quite similar to the personal rules there. It’s kind of the same principle you look at, what does the end?
Cause don’t forget, a corporation is an, is an entity. So it’s, it’s, it’s not in a way it’s kind of like a person, except it doesn’t survive. Its demise, the company does. Right. Some people think people survive the device I’m getting off course. Okay. That was a joke. Nobody’s laughing. Okay. So, the big issue is it’s not the corporate tax because that follows the same rules.
You have to worry about the same things. It’s a sales tax. And it’s very interesting the sales tax because it depends on what you’re selling. If you’re selling a product to Canadian, you have to charge pages to or GST and in the province. And you know, you have to sort that out and everybody can see it because, you know, we buy practically w since the pandemic, we buy everything online and we’re all no matter we’re buying online, it’s coming from the new last week we’re charged patients to, or for Ontario, right?
And you have to look at the province and you know, the tax that our tax rates in Ontario are different, the province, and you have to pay in each area, where are you get? Where what’s interesting are again, the digital services for the digital streaming services. Canada decided to make the individual who receives the streaming service, pay them directly. So if I have Netflix and they don’t charge me HST, which they don’t, I’m supposed to pay the government.
Well, then there was an auditor’s report on this joke, and they discovered that nobody’s doing it because nobody knows about it. I didn’t know about it until today when I was actually researching the question and came across the auditor’s report. And they said that since this rule came out in 2017 and since 2017, there have been exactly 500 payments. Nobody why 500 times in the whole country, did anybody ever pay their HST personally?
Like whatever the percentage is. Right? And then they only paid it once. And then they stopped paying. They have no, they can’t enforce it. And you know, like everybody in Canada has Netflix. So, the only 500 people altogether paying for whatever, whatever digital streaming services we have, what’s the other one, Amazon prime, HBO. We have them all right. We’ve never, I didn’t know until today that we were even supposed to pay, they never publicized it. And also, do you know that the other part of this is so far, the Canadian government has done zero audits on this stuff.
So, but they are moving now to close this up because they need money and every which way, all everywhere in the country. So, you’re, you have to now sort this out, sort of your business and pay the appropriate taxes to, for wherever your customer is. And then you also have to look at the taxes for, if you have a permanent establishment, you have to look at your situation and get advice from experts. It’s changing also it’s evolving and changing all the time.
DERREN JOSEPH:
Yes, e-commerce and taxes around digital services is one of those areas. It is very cutting edge, and their rules are constantly evolving internationally, as well as domestically as well.
ROSLYNNE FLACKS:
Does the US taxed e-commerce, the state, state taxes, right?
DERREN JOSEPH:
Right. So, in terms of the digital services, they, the big guys, like a Netflix now that I’m aware of, I mean, they pay corporate tax or whatever, but to the consumer. So, the sales taxes tend to be reserved for physical, tangible products. But increasingly I think 10 states so far have jumped on the bandwagon for SAS, so software as a service. So those smaller digital products being taxed increasingly, but it’s an emerging space.
ROSLYNNE FLACKS:
I think it’s all going to be taxed. When everything goes digital, we may see that the tax is done at source. Like we have a choice. That’s another thing that’s happening now. That’s going to have another impact. And of course, we don’t see the way things have changed because of the pandemic everybody’s buying online. And like we were, you know, the Hudson Bay, the Hudson’s Bay company, their day, there’s nobody in it.
There’s no product. We figured they’re going to float. A lot of these big stores are closing. Nobody’s using them anymore. You know, there’s no staff, it’s so much easier to buy. Online. Returns are easy and everything. We have a paradigm shift that probably wouldn’t have happened from the five to 10 years, but it’s not, it happened immediately. You couldn’t, you were locked down and need to teach you everything in sight. So, you ordered it, right?
DERREN JOSEPH:
Yes, you’re absolutely right. The lockdown accelerated certain pre-existing trends. So, you know, across not just north America, but Europe in any story, it’s a similar story. Okay. So, the next question, and to the person that asked this question, I’m sorry, but it wasn’t very clear. So just to kind of rephrase it, as we understood it, as we received it today.
So, one person, the two business partners, one person is Canadian tax resident, presumably in Quebec, and the other business partner is located outside of Canada. It doesn’t matter where someone outside of Canada and they own a Panamanian company, 50-50 now, whatever goods or service that this Panamanian company provides or sells or does the revenue is received into the U S into us bank account.
And so, the question that we receive is from the, obviously from the Canadian tax resident, they asking, you know, hey, how is this money going to be taxes? This self-employment income. And, well, we had a bit of discussion about it rather than, do you want to summarize, your perspective given the limited information?
ROSLYNNE FLACKS:
We don’t really have enough information, but one of the things we’ve wondered is what business are they in? But you don’t know. But, but the issue here, there’s a basic issue here. And we don’t know if the Canadian tax resident is, even though it’s normally having 50% of the corporation, is he managing the corporation, is the heart and mind in Canada. We don’t know if the heart and mind is Canada. Then this, this pendant kind of name corporation will be taxed as a non-resident.
And we incorporate, so that wasn’t something we don’t know. Now, as far as the Canadian, it’s not self-employed earnings because assuming that even if the heart and mind is 50-50, that may, that may even be enough. I don’t know if it has to be 51%. I would have to look up case law on that because the government would try and make it taxable here. But the question of what he does with his income, I’m assuming he’s only a shareholder and there’s no heart and mind issue.
Then all they can get. The only time we can give is dividends or re you know, you can’t get salary, or he would be part helping to manage it. So, and one thing we were told just as an aside is that if a company wants, has employees in Canada, but they’re not hard. They’re, they’re not hard minded. They’re not running a company. You have to set them up with a payroll. There’s a payroll service you use, you don’t pay them out of the company, or you, you run into that being brought into this whole thing.
There’s payroll services set up. All they do is pay Canadian employees on top, on behalf of other companies. So, let’s say the sky is not hard in mine, but he’s just a cog in the wheel. And he’s not really, he’s an investor, but he’s not, he’s not really running the company. Then he needs to get salary out of this company. Then he shouldn’t be set up with, with, with a service that does the payroll and handles it, and wishes is too boring. It’s a good example. If he, if he is just an investor, then he gets dividends.
Well, if it comes in as a dividend and stocks does a dividend and you won’t get any better, there’s no tax, there’s no dividend tax credit. It’s just taxed on that dividend in Canada, that full pot, whatever that dividend is, he doesn’t have self-employed earnings because you can’t have self-employed company. I mean, I guess you could, you could invoice them. If he let’s say he’s doing a service for them, but it’s not his heart and mind are opposed to having payroll could invoice them and then put that through self-employed. You would have to watch the HST because all right, if he goes over 30,000 and the work has done in Canada, then he would have to the charged the company HST and they would be able to get it back. So, we don’t have enough information to really answer them that this would be the type of thing. We would not need to know the specifics. There was a lot of considerations here that needs to be worked out for these guys to make sure that the compliance and all the jurisdictions. And of course, there’s the US matter of the US as well. I don’t know where that’s your area. I don’t know too much of it. Although I’m learning. So, I don’t think we could say anymore that for them.
DERREN JOSEPH:
Okay. That’s fine. Thank you for that. We have 10 minutes left and I’m going to pick up a question from a viewer on Facebook if you spend most of the year abroad yet continue to be Canadian tax residents and pay your taxes into Canada. Right? Can you still withdraw your RRSP, and do they still do a claw back on the OAS?
ROSLYNNE FLACKS:
Okay. So, if you’re, if you’re a Canadian resident here, I mean, you’re, you’re still classed as a Canadian resident because you come out and you, are you here more than 183 days? We don’t know. And should we assume that if you’re here more than 183 days, and you thought all the ties that we went over on the first question of, and your cast, you would be a Canadian resident. If you’re less than a hundred days, you would be a factual and have all the ties you need. Factual residents still taxed us the same as a Canadian as well.
So new would not be RRSP would not have the, the, if you’re not a Canadian resident in your RRSP, and we take money out of it, you have the Holden, otherwise you don’t, you just have the regular checks that actually the tax, depending on the tax bracket, the tax could be wired to take money out of it. As far as the OAS callback, no, you wouldn’t have it so you can still get your OAS and it wouldn’t be affected at all. But I could see just the fact that you’re not living here doesn’t make any difference. It’s your residency status that matters for last and again, you would have to go. I would recommend both through the pro the proper thing of having the Canada say what your residency status is, fill out the N73, if you were working with us, you would be working with us and the lawyer and the lawyer would send in the N73 form for you with a letter that we had vetted, that would say that in her opinion or his, or her, his opinion, you’re, you are a factual resident, or you are a Canadian resident, whatever. And then you have that, and they wait for their opinion and have it in writing. They can otherwise you’re leaving yourself open if you’re not here more than good news.
DERREN JOSEPH:
Okay. Thank you for that. Hope that answers your question, Raphael. Okay. Moving for the last questions. Last few questions from one person. So, this person, he is asking a question that I think you addressed earlier. Oh, we touched on earlier. So, they are working in south America and in Chile, and they are asking about exchange of information.
Yes, we did mention earlier that many countries in the world, including Canada have signed into governmental agreements where they share financial information. So, if it is you are working and you have a bank account, you have a business or whatever, and Chile, and you are depositing money into financial institution that they, as part of the onboarding process, as it is in Canada, which is reverse, they would ask questions to figure out what other taskers addictions you are exposed to.
And if Canada’s mentioned, and they, even, if you don’t mention it and they figure out that you are also Canadian exposed or Canada exposed, then potentially there would be an exchange of information under the CRS common reporting standard or the automatic exchange of information. So, the point in saying all of that is that regardless of which jurisdiction you’re in, you want to make sure you’re compliant with that jurisdiction, as well as Canada to the extended, you still Canada tax resident. So that’s that question. Okay.
ROSLYNNE FLACKS:
So, Chile does have a tax treaty with Canada.
DERREN JOSEPH:
Okay, great. Do we have any more questions? I’m just going to do a quick check on some of the other platforms. No, I think that’s it. Roslynne thank you very much for your time. Sharing your insights and your expertise, Catherine good to see you as well. And if someone wants to follow up with you and get further information or to engage you from, what’s the best way to reach you guys.
ROSLYNNE FLACKS:
So, the best way to reach us, you can reach us on, on WhatsApp, on email, on, well, I don’t know. I’m not too good on zoom. As you can see email WhatsApp, text, any, anything like that? Unfortunately, I don’t know how I would post my information, but I don’t know how to do it on zoom.
DERREN JOSEPH:
Okay. That’s, that’s no problem. So, anyone who wants to find out to how you would engage Roslynne or Katherine or another member of their team, you can just reach out to us. HTJ.tax just help@htj.tax and because we service quite a number of clients together with their team. So, we will be happy to make that introduction. So, you just reach out to us at HTJ.tax, and we’ll put you in touch with the right member of Roslynne, Catherine and their team.
So, on that note, thank you for joining us. This is being recorded and it will be uploaded on to over 20 podcast platforms. So, iTunes, SoundCloud, wherever it is, you get your favorite part podcast. Amazon. It’s going to be there. It’s also on YouTube, on Facebook as well as on our website HTJ.tax. Thank you for joining us and we will see you next time. Have a good evening
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