Emigrant return date, T1161 penalty woes

psvt · Post by **psvt** » Thu Nov 12, 2009 4:59 am

Heres the situation:

- Canadian citizen, quit job in early 2008 to do some travelling with boyfriend
- I own Canadian real estate as my only major assets, which I changed-in-use to a rental property shortly after quitting my job.
- Got TN status in USA in fall 2008
- Got TN status with a different employer in mid-2009.
- I am filing my return late this year, thinking it would be a departure return with a hefty refund, since deemed disposition doesn't apply to Canadian real estate. Unfortunately I got completely caught off guard by T1161 and the penalties for late filing, and am kicking myself for this negligence now.

What I am considering doing
- Filing as full year resident in Canada for 2008 with foreign tax credit for my U.S. taxes (this still results in a refund, as my tax withholdings were high in my old Canadian job, plus I lost a bit on the rental property)
- Filing a departure return in 2009 (and a Section 216 return for the rental).

Questions
1. Does the above make sense? Is this a legitimate way to avoid the t1161 late filing penalty, by deferring my effective emigration date to the following tax year?

2. If so, what emigration date should I use for my departure return in 2009 -- January 1st? Or should I use the date of my new 2009 TN with the new employer, biting the bullet on Canadian world taxes through then?

3. What kind of penalties should I expect for not properly getting NR4 withholdings for 2009? I expect my net income to be a loss on the Section 216. I already am working to file an NR6 for 2010 and getting NR4's for 2010.

nelsona · Post by **nelsona** » Thu Nov 12, 2009 7:39 am

You left in 2008, and thus you became non-resident in 2008, and were dur to send departure terum in April 2009.

Not much else to discuss.

So,
1. No

2, You left in 2008

3. How are you handling the rent now? Each month 25% of rent is to be sent to CRA, without fail.

psvt · Post by **psvt** » Thu Nov 12, 2009 11:08 am

Thanks. I guess will just deal with the T1161 penalties then.

As for 3. There has been no withholding. That was my question - I am within the 2 year period for the Section 216 return, showing a loss, but my property manager has not been withholding for that time. What might I expect from the CRA? Interest on the 25% gross that would have been withheld?

My excuse (as poor as it is) - when I first rented the property in May of 2008, I remained a resident of Canada until September 2008, as I required residential ties to Canada for US immigration (they weren't too thrilled with me staying in the U.S. as an extended tourist). When I got my TN that September, I neglected to inform my property manager of becoming a non-resident (not something that I understood at that time, as I had not done my tax homework).

nelsona · Post by **nelsona** » Thu Nov 12, 2009 11:19 am

The section 216 return, and the procedure for withholding are 2 separate issues.

NR withholding is to begin immediately upon departure. You have a month to set it up. There are daily penalties.

Only an NR6 determination can reduce or eliminate this withholding requirement. When you get the result of your NR6 filing, your agent will be allowed to reduce thewithholding, until then, and since the fall of 2008, someone should have been remitting 25% of the rent directly to CRA.

The 216 return is filed for two reasons (a) in order to get some or all of the 25% withheld tax back, or (b) if you've filed NR6 in order to validate the figures from your NR6 an determine the final tax on your rental income for the year.

The saddest part of all this is that you knew miost of these requirements when you left...

And don't forget to report your rental income on your 2008 1040 as well.

Nishant · Post by **Nishant** » Sat Nov 14, 2009 6:07 pm

Hello Nelsona,
Can you please provide information on procedure for withholding tax.

1) Does it have to be done by a person in Canada or non resident itself can pay advance 25 % using SIN # ?

2) How to set up an non resident account etc?

Thanks

nelsona · Post by **nelsona** » Sat Nov 14, 2009 7:45 pm

This is to be done by a Cdn resident, is not complicated, and info is online:

http://www.cra-arc.gc.ca/E/pub/tg/t4061/README.html

http://www.cra-arc.gc.ca/E/pub/tg/t4061/README.html

Nishant · Post by **Nishant** » Sun Nov 22, 2009 8:14 am

Hello Nelsona,
Thanks,

It is all clear about NR tax payment on rental property. One question however, if a person declares as a non resident of Canada and takes up a job there and if gets a lay off from US job, s/he has to return to Canada.

How cumbersome and difficult process is to become resident of Canada or at least to stop paying 25 % gross rent.

Thanks

nelsona · Post by **nelsona** » Sun Nov 22, 2009 5:00 pm

It's a phone call to your tenant.