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SCMP Reporter

HONG Kong business people joining their families in Canada face massive bills for back taxes that could knock a huge dent in their savings.

   Tax authorities in Hong Kong and Canada would be entitled to a 'double dip' from such emigrants because of the broad-based methods used by Canada to determine a tax resident.

  The bills could involve payments of up to 66 per cent on personal income for those earning enough to put them in the top tax bracket.

  Deloitte Touche Tohmatsu tax partner Joseph Wong Wai-leung said yesterday many people were unaware of the risk.

  He said a recent area of contention involved the growing population of 'astronauts' who continued to run their businesses in Hong Kong but maintained families in Canada to fulfil immigration requirements.

  He said in general, the spouse would file a Canadian income tax return and the breadwinner would claim non-residency on the basis that he was never in Canada more than the 183 days which make people liable to pay tax.

  'Unfortunately, the concept of residency in accordance with the Canadian tax law is not a black and white case. Residency is determined by where a person's roots or ties lie,' Mr Wong said.

  He said even simple actions such as the opening of a Canadian bank account and participation in medical plans could be used to determine whether a person had established ties with Canada and was liable.

  In theory, it was possible that a visitor could be in hospital for longer than 183 days and become liable to pay tax, he said.

  In the 'astronaut' situation, the person could be challenged by the tax authorities as he was considered to be a resident by virtue of his maintenance of a home in Canada, acceptance of Canadian provincial health care benefits and acceptance of a provincial driver's licence.

  'The overriding factor would be the residency of his family members in Canada and they are still solely financially dependent on him. In this case he may be challenged and deemed a Canadian tax resident.'   Mr Wong said the only way to avoid Canadian taxes was to spend just the minimum amount of time necessary in the country to gain the right to a passport.

  'Do nothing, don't set up any accounts or make any links at all until you are ready to leave Hong Kong for good and then make sure your provident fund payment is made before you land in Canada or it will become liable to Canadian tax.'   Mr Wong quoted an example of a businessman earning $2 million a year being billed in advance for Canadian personal income tax at a rate of 51 per cent and then for the Hong Kong tax of 15 per cent.

  He said a foreign tax rebate was allowed by Canada enabling the rate to be reduced by the 15 per cent to 36 per cent.

  But the rebate was only made after all tax had been paid, meaning emigrants had to provide 66 per cent up front.

  Mr Wong said there had been instances where businessmen had spent several years in Hong Kong unaware they were liable to pay Canadian tax.

  'When they finally get to Canada and file their first tax return, questions have been asked and they have been hit with bills for all the years they had links in Canada. Arrangements then have to be made to pay what in some cases have been very large bills.'   People with their own businesses could cut tax bills through offshore discretionary trusts but employees could do very little, Mr Wong said.

   A spokesman for the Canadian Commission in Hong Kong said all potential emigrants should consult a tax lawyer.



Canada migrants face tax shock