WHAT MAKES YOU A TAX RESIDENT ?
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The other part of this subject that creates a lot of confusion for people is what exactly makes them a tax resident. It used to be that there was a fairly simple test that would determine whether you were taxable in the country based on how many days you spent there.
The magical number for this test was 183 days. If you spend any amount of time less than that in the country, you wouldn’t be taxed there.
While some countries still use this test, the situation right now is much more complicated. For the most part, building your
offshore strategy around this test is not going to help you much these days.
Under the days test, people would simply make sure that they never spent 183 days anywhere. Now, governments want to know what country you have the closest connection to, and that means not only spending time but also establishing other connections in that country.
Where is the center of your life? Where is your family? Where do you have a place with available accommodation? Where else are you liable to pay tax? These are all factors that are going to be considered.
If you can’t point to a place where you have these types of connections and you choose to spend 182 days in Canada each year, your case for tax non-residence in Canada is not going to be very convincing.
Now, there are certain emerging or newly
developing countries around the world with tax systems that aren’t as strict or robust that may still rely strictly on the days test. For example, I have residence in a country with a fairly cut-and-dry 183-day standard. If I spend 183 days or more in the country, I am a tax resident. If I spend 182 days or less there, they don’t care. I’m not their tax resident.
Most countries in the western world have more shades of gray when it comes to determining tax residence. I’ve told numerous stories before in which a guy left something as simple as a surfboard behind and the western government determined that it was enough of a connection to consider him a tax resident.
To avoid situations like that, you need to do some proper planning. It’s possible to be nomadic – you don’t have to be chained to one place the entire year – but you need to plan. You need a new jurisdiction that operates as your fiscal residence so that you can answer the question, “Where are you liable to pay tax?”
There are some countries where you can become a tax resident and “be liable to pay” zero tax. But without proper planning, you could still end up getting a knock on your door about a surfboard you left somewhere back home. With planning and proper execution, however, you can successfully leave your high-tax residence behind.”