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ANSWERED on Mon 19 Nov 2007 - 3:40 am UTC by hummer

Question: Tax

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Sat 17 Nov 2007 - 7:58 pm UTC

Question

daized
Customer

What is the difference between Resident-Ordinarily-Resident and Resident-Not-Ordinarily Resident?  And would it be good if Canada adopted these?


I've found that these have been adopted in the  UK, India, Singapore and generally speaking,most british commonwealth countries.  Not ordinarily resident refers to an individual who does not reside an a country for a long time, and therefore, this reduces the amount he/she is taxed.  These concepts centre around individual taxation.
***I need this answered by the evening of Wed, Nov. 21/07 ***
Thank you

 
 

Sat 17 Nov 2007 - 10:02 pm UTC

Uclue Researcher Request for clarification

David Sarokin
Researcher

daized,

I can certainly point you towards specific UK government documents that discuss the distinctions between the terms you asked about.

It is not unusual for tax systems to have rules for taxing income (or making other official determinations) that are dependent on how much time one spends in the country, and whether one is a resident or visitor. 

I'm sure Canada has such rules as well, even though they may not use the same terms as the UK, Singapore, etc. 

If that is indeed the case, I'm not sure what Canada would gain (or lose) by adopting the particular terms of art used in the UK. 

Can you clarify what you need here?  In particular, what more are you after than links to the meaning of these terms, as they are used in UK tax law?

Thanks.

David

P.S.  These terms are also used in other areas of UK law, such as insurance and distribution of benefits.

 

Sat 17 Nov 2007 - 10:55 pm UTC

Question clarification

daized
Customer

Hi David,

Thank you for your comments. 

However, I need more than just links. I've researched the two terms already, and I've found answers that are quite convoluted.  What I need is, in simple english, is to compare & contrast the two terms. 

I realize that there are certain criteria for each term to be met.  For example,  in order to qualify for the standing of "Resident not ordinarily resident", there are certain criteria an individual needs to meet.  This is the kind of information I need. (this is just one aspect)

In terms of answering the question of whether Canada should adopt these, I would appreciate if you attempt to answer this.  However, I understand that this may require the knowledge of Cdn tax laws and that it may be difficult.  Therefore, if you can provide me with a solid and complete understanding of the terms, I will be able to answer whether Canada should adopt these.

So if you can provide me with a comprehensive contrast and comparison of the two terms, I would be satisfied.  Also, please provide me with information not just from the UK.  Thanks.

 

Mon 19 Nov 2007 - 3:40 am UTC

Uclue Researcher Answer

Patricia
Researcher

Hi daized,

- Short answer to your question:

British:
Ordinarily Resident > Permanent Resident
Not Ordinarily Resident > Temporary Resident

Canada already uses the term "ordinarily resident" in subsection 250(3) of the Income Tax Act which indicates that Canadians must sever all residential ties to Canada if they want to lose their "ordinarily resident" status for income tax purposes. In other words, for tax purposes, it doesn't matter how long you stay abroad, you will retain your "ordinarily resident" status until you break all ties with Canada and make a permanent new home elsewhere.  Ordinarily Resident status in the British tax system is determined by the number of years you've lived there and how long you intend to stay.

- CANADA

Ordinarily Resident: you retain this status while abroad unless you sever all residential ties with Canada.

Canada Revenue Agency
Determination of an Individual's Residence Status
"In determining the residence status of an individual for purposes of the Act, it is also necessary to consider subsection 250(3) of the Act, which provides that, in the Act, a reference to a person 'resident' in Canada includes a person who is 'ordinarily resident' in Canada. The Courts have held that an individual is 'ordinarily resident' in Canada for tax purposes if Canada is the place where the individual, in the settled routine of his or her life, regularly, normally or customarily lives. In making a determination of residence status, all of the relevant facts in each case must be considered, including residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad"
http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.html#P69_3475


- BRITAIN

Resident (you live in the UK for 182+ days) +
Ordinarily Resident (you live there year after year)

Resident (you live in the country for 182+ days) +
Not Ordinarily Resident (the rest of the time you live abroad) 

Non-Resident (you haven't been in the UK during the tax year) +
Ordinarily Resident (your home is in the UK)

HM Revenue and Customs
IR20 - Residents and non-residents: Liability to tax in the United Kingdom
Residence
1.2 "To be regarded as resident in the UK you must normally be physically present in the country at some time in the tax year. You will always be resident if you are here for 183 days or more in the tax year. There are no exceptions to this.
Ordinary residence
1.3 If you are resident in the UK year after year, you are treated as ordinarily resident here. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in this country for 183 days or more in the year. Or you may be ordinarily resident but not resident for a tax year if, for example, you usually live in the UK but have gone abroad for a long holiday and do not set foot in the UK during that year. "
http://www.hmrc.gov.uk/pdfs/ir20.htm

Ireland Office of the Revenue Commissioners Customs and Residence division
Residence and Domicile claims
"The basis on which an individual is taxed in the UK is largely dependent upon their residence status. Broadly, an individual can be a non resident, a temporary resident (not ordinarily resident) or a permanent resident (ordinarily resident). The status assigned to an individual has as much to do with the intended length of stay on arrival as days of physical presence."
http://www.expatexchange.com/lib.cfm?articleid=1921


-- INDIA

Residential status under Income Tax Act
"Section 6 of Income Tax Act 1961 classifies residential status as:
a) Resident and Ordinarily Resident in India b) Non-Resident in India c) Resident but not ordinarily resident
a) Resident and Ordinarily Resident (ROR): An individual is treated as a resident' if he: -stayed in India for 182 days or more during the previous year.
-stayed in India for 365 days or more during the 4 preceding years of which at least 182 days was during the previous year.
b) Non-Resident in India (NRI): A person is non-resident if he is not a resident in India as given above.
c) Resident but not ordinarily resident (RNOR): A person attains resident but not ordinarily resident status if he:
-has not been a resident in 9 out previous financial years preceding that financial year or
-stayed in India for 729 days or less during the previous 7 financial years preceding that financial year.
Thus to attain resident but not ordinarily resident' status for a period of 2 years after return to India, one should reside outside India for a continuous period of at least 2 years."
http://www.corpbank.com/asp/0100text.asp?presentID=69&headID=0

 - More details

CANADA: INDIVIDUAL NON-RESIDENT TAXATION# 
"Whilst in some jurisdictions such as the UK 'ordinarily resident' and 'resident' are distinct terms which occasionally overlap, in Canada a person who is "ordinarily resident" is automatically resident under section 250 of the Income Tax Act. Thus in Regina V Reeder 1975 it was held that a person who was born and resided in Canada until 1972 but who subsequently went abroad to work for a few years was 'ordinarily resident' in Canada in that he 'regularly, normally or customarily' lived in Canada and therefore automatically resident. In other words having a habitual home in Canada makes a person ordinarily resident and therefore automatically 'resident'. This rule has led to a much more aggressive assessment of Canadian nationals transferred abroad."
# "There must be some permanence to losing your Canadian residence. This permanence is more akin to surrendering your 'domicile' under UK tax law. (For fiscal purposes the concept of domicile does not exist in Canada). Loss of Canadian residence almost indicates never intending to return to Canada. A Canadian resident is deemed non-resident from the date of his departure if he can show he 'severed all residential ties with his country'".
http://www.lowtax.net/lowtax/html/offon/canada/cantax.html

Canada Revenue Agency
Determination of an Individual's Residence Status
Application of Term "Ordinarily Resident"
¶ 10. "Where an individual has not severed all of his or her residential ties with Canada, but is physically absent from Canada for a considerable period of time (that is, for a period of time extending over several months or years), the Courts have generally focused on the term 'ordinarily resident' in determining the individual's residence status while abroad. The strong trend in decisions of the Courts on this issue is to regard temporary absence from Canada, even on an extended basis, as insufficient to avoid Canadian residence for tax purposes. Accordingly, where an individual maintains residential ties with Canada while abroad, the following factors will be taken into account in evaluating the significance of those ties:
(a) evidence of intention to permanently sever residential ties with Canada,
(b) regularity and length of visits to Canada, and
(c) residential ties outside Canada.
For greater certainty, the CCRA does not consider that intention to return to Canada, in and of itself and in the absence of any residential ties, is a factor whose presence is sufficient to lead to a determination that an individual is resident in Canada while abroad.
Evidence of Intention to Permanently Sever Residential Ties
¶ 11. Whether an individual intended to permanently sever residential ties with Canada at the time of his or her departure from Canada is a question of fact to be determined with regard to all of the circumstances of each case. Although length of stay abroad is one factor to be considered in making this determination (that is, as evidence of the individual's intentions upon leaving Canada), the Courts have indicated that there is no particular length of stay abroad that necessarily results in an individual becoming a non-resident. Generally, if there is evidence that an individual's return to Canada was foreseen at the time of his or her departure, the CCRA will attach more significance to the individual's remaining residential ties with Canada (see ¶s 5-9), in determining whether the individual continued to be a factual resident of Canada subsequent to his or her departure. For example, where, at the time of an individual's departure from Canada, there exists a contract for employment in Canada if and when the individual returns to Canada, the CCRA will consider this to be evidence that the individual's return to Canada was foreseen at the time of departure. However, the CCRA would have to review each individual's situation on a case by case basis to determine whether the individual's remaining residential ties with Canada, including the contract of employment, are sufficient to conclude that the individual continues to be resident in Canada."
http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.html#P100_12398

In regards to whether or not Canada should change to the British model for taxation purposes, this is a very complicated question as there are many factors to take into account, such as international tax treaties (which are there to protect people from having to pay tax to two different countries on the same income), type of income, the amount of income and the tax rates. To give you an idea, read the following:

Part I Meaning of 'residence', 'ordinary residence' and 'domicile' for tax purposes
http://www.hmrc.gov.uk/pdfs/ir20.htm

Non-residents in Canada are subject to taxation now.

Non-residents
"You're a non-resident for tax purposes if you:
 * normally, customarily, or routinely live in another country and aren't considered a resident of Canada; or
 * don't have residential ties in Canada; and
   o you live outside Canada throughout the tax year; or
   o you stay in Canada for less than 183 days in the tax year.
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive."
http://www.cra-arc.gc.ca/tax/nonresidents/individuals/nonres-e.html

Canada > Tax Treaties > Countries
http://www.fin.gc.ca/treaties/treatystatus_e.html

I hope I've been able to give you a better understanding of the phrases "ordinarily resident" and "not ordinarily resident".

Thank you,
Pat

 
 

Wed 21 Nov 2007 - 8:08 pm UTC

Uclue Researcher Comment

richard
Researcher

I think you'll find the key difference when it comes to UK income tax is that a person who is resident but not domiciled in the UK need pay income tax only on a remittance basis.

"Where the remittance basis applies, you are liable to UK tax on the amount of your overseas investment income that is remitted to the UK. Income is remitted if it is paid here or transmitted or brought to the UK in any way. In working out your tax liability, we include all income remitted to the UK."
http://www.hmrc.gov.uk/pdfs/ir20.htm#investment

So if you're a Greek shipowner or the like, you can keep your billions in Switzerland, live the whole year in a London mansion, and pay no UK income tax simply by not "remitting" income.

Try the same trick in Canada or the US and you'll pay income tax on every penny your Swiss account earns!

Gordon Brown Leaves 'Non-Doms' Unscathed
http://www.onshore2offshore.com/news/Gordon+Brown+Leaves+'Non-Doms'+Unscathed

 

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