Income Tax Act Subsection 250(1)
Canada allows its citizens to be residents of Canada for tax purposes, and non-residents of Canada for tax purposes. This is an important distinction as a non-resident of Canada for tax purposes will only be subject to Canadian taxation on Canadian sourced income. So income from sources outside of Canada is not subject to tax debit here. This is different from the United States where taxes are sought on worldwide income no matter where you reside.
Tax residency is wholly separate from your status as a citizen, or a permanent resident.
To determine tax residency, the Canada Revenue Agency will look at significant residential ties, and secondary ties.
Significant residential ties to Canada include:
- A home in Canada;
- A spouse or common-law partner in Canada; and
- Dependents in Canada.
Secondary residential ties that may be relevant include:
- Personal property in Canada, such as a car or furniture;
- Social ties in Canada, such as memberships in Canadian recreational or religious organizations;
- Economic ties in Canada, such as Canadian bank accounts or credit cards;
- A Canadian driver’s license;
- A Canadian passport; and
- Health insurance with a Canadian province or territory.
In order to be declared a non-resident of Canada for tax purposes, you must sever the above ties to Canada, and establish the same ties to another country.
Provincial Residency
The same rules apply to provincial residency, as they do to Canadian tax residency. This is because of the different tax rates in each province. If there were no provincial residency rules, then Canadians would all file their taxes in Alberta, as that is the province with the lowest tax rate.
Provincial residency can be complicated for those who work half of the year in one province, but reside the other half of the year in another. If you are in this situation, we suggest seeking legal assistance in order to determine the correct provincial residency.
Income Tax Act Residency
The Income Tax Act contains three types of residencies:
- Ordinarily (factual) resident;
- Deemed resident; and
- International tax treaty.
Ordinarily resident is essentially where one’s social and economic life is.
A deemed resident is where a taxpayer is deemed to be resident here in Canada though they may not have the requisite ties to be ordinarily resident. This usually occurs when someone stays more than 183 days here in Canada. They are then deemed to be resident of Canada.
International tax treaties come into play where someone is resident of two countries at the same time. The treaties contain rules to avoid this dual residency and thus avoiding double taxation. The rules are known as tiebreaker rules, and each treaty may contain different rules.
If you find yourself a resident of more than one country, or you do not know if you are a resident of Canada for tax purposes, you should seek immediate legal assistance.
CRA Resources
Form NR73, Determination of Residency Status (Leaving Canada)
Form NR74, Determination of Residency Status (Entering Canada)
Income Tax Folio S5-F1-C1 – Determining an Individual’s Residence Status
Case law
Black v The Queen, 2014 TCC 12 – Double Residents – What is the effect of resident tie breaker rules in tax conventions?
The FCA upheld this decision in Black v Canada, 2014 FCA 275
Dysert v The Queen, 2013 TCC 57 – Factual Resident, Deemed Resident, Treaty Tie-Breaker Rules
More detailed case law analysis may be found here: http://ita-annotated.ca/RecentDecisions/category/substantive-provision/residence/
