Introduction - The Notion of "Residence" in Canadian Tax Law
Three rules bear on an individual's status as a tax resident in
Notably, tax residence is distinct from residence for immigration purposes: You can be a Canadian tax resident even if you aren't a Canadian permanent resident or citizen, and you can be a Canadian citizen or permanent resident yet fail to be a Canadian tax resident.
By examining two cases, each involving Canadian airline pilots, this article illustrates the subtlety that comes with determining a person's status as a tax resident. Hauser v the Queen (2005 TCC 492; aff'd. 2006
Before turning to these two cases, this article reviews the Canadian tax rules relating to common-law residence, deemed residence, and deemed non-residence.
Common-Law Tax Resident (i.e., Factual Resident)
Although
In its landmark 1946 decision, Thomson v Minister of National Revenue, the
Several factors that speak to whether an individual is a factual resident in
-
The taxpayer's past and present life habits;
- The taxpayer's regularity and length of visits in the jurisdiction asserting residence;
- The taxpayer's ties within that jurisdiction;
- The taxpayer's ties elsewhere; and
- a spouse or common-law partner in the jurisdiction; and
- a dependant in the jurisdiction.
- personal property in the jurisdiction (such as furniture, clothing, automobiles, and recreational vehicles);
- social ties to the jurisdiction (such as memberships in Canadian recreational or religious organizations);
- economic ties to the jurisdiction (such as employment with a Canadian employer and active involvement in a Canadian business, and Canadian bank accounts, retirement savings plans, credit cards, and securities accounts);
- immigration status or appropriate work permits in the jurisdiction;
- hospital or medical-insurance coverage in the jurisdiction;
- a driver's license in the jurisdiction;
- a registered vehicle in the jurisdiction;
- a seasonal dwelling or leased dwelling in the jurisdiction;
- a passport issued by the jurisdiction;
- memberships in unions or professional organizations in the jurisdiction.; and
- other residential ties, including a mailing address, post office box, safety deposit box, personal stationery (including business cards), and telephone listings.
- The individual shall be deemed to be a resident only of the jurisdiction in which the individual has a permanent home available.
- If the individual has a permanent home available in both jurisdictions or in neither jurisdiction, the individual shall be deemed to be a resident only of the jurisdiction with which the individual's personal and economic relations are closer (centre of vital interests).
- If the jurisdiction in which the individual has a centre of vital interests cannot be determined, the individual shall be deemed to be a resident only of the jurisdiction in which the individual has a habitual abode.
- If the individual has a habitual abode in both jurisdictions or in neither jurisdiction, the individual shall be deemed to be a resident only of the jurisdiction in which the individual is a citizen.
- If the individual is a citizen of both jurisdictions or of neither jurisdiction, the competent authorities of each jurisdiction shall settle the question by mutual agreement-that is, the
Canada Revenue Agency and theInternal Revenue Service will come to an agreement on the issue.
The taxpayer's permanence or purposes of a stay abroad.
To evaluate a taxpayer's ties to a particular jurisdiction, Canadian courts and the CRA observe the following:
-
a dwelling place in the jurisdiction;
Not all jurisdictional ties are given equal weight. Canadian courts and the CRA both consider the first three ties-dwelling, spouse, and dependent-as significant ties to a jurisdiction. That is, the presence of a taxpayer's spouse, child, or dwelling in
In essence, no one factor emerges as singularly important for determining whether an individual is a factual resident in
Deemed Resident: The Sojourner Rule of Paragraph 250(1)(a)
Paragraph 250(1)(a) deems a person "to have been resident in
You sojourn if you visit. So, unlike a common-law resident, a sojourner need not either have a "settled routine" in
Deemed Non-Residence: Subsection 250(5)
Subsection 250(5) of the Income Tax Act deems a person to be a non-resident in
Moreover, subsection 250(5) trumps both common-law residence and the deemed-resident sojourner rule in paragraph 250(1)(a). In other words, if subsection 250(5) applies, then the taxpayer is a non-resident in
For example, the tie-breaker clause appears in Article 4(2) of the Canada-US Tax Treaty. Under Article 4(2), if an individual is a tax resident of both
Again, these tie-breaker rules apply only if the taxpayer is a resident under both treaty countries' domestic tax laws; they don't apply if the taxpayer is a resident in only one country.
Hauser v the Queen (2005 TCC 492; aff'd. 2006
In Hauser v the Queen, the taxpayer, an
The
The Tax Court concluded that the taxpayer remained a tax resident in
Laurin v the Queen (2006 TCC 634, aff'd. 2008
In Laurin v the Queen, the taxpayer initially lived in
The
The Tax Court sided with the taxpayer. The court concluded that the taxpayer had ceased to be a Canadian resident. The court found that he had severed residential ties with
The Differences that Made a Difference: Making Sense of Hauser and Laurin
The decisions in these two cases might strike one a perplexing. After all, the facts are very similar: A Canadian airline pilot moves to a tropical country and leaves behind no dwelling, spouse, or children in
The Tax Court decided Hauser before Laurin. So, when deciding Laurin, the court considered Hauser. And the court's comments illustrate that it occasionally does come down to hairsplitting:
Unlike
The distinguishing features don't seem all that significant. Hauser received mail at his mother-in-law's address, where he perhaps also established a "sense of permanency" by leaving behind some clothing and a spare pilot's uniform. Hauser's "investment or business activities" consisted of a project for which he couldn't secure financing and didn't even get off the ground. So, it all apparently came down to a mailing address, a pilot's uniform, and a pipe dream.
Tax Tips - Obtaining Certainty with Residence Status or Relief for Unreported Foreign Transactions or Property
The Hauser and Laurin decisions illustrate how seemingly insignificant details might make the crucial difference in your status as a Canadian tax resident.
If you misconstrue your tax-residence status, you may erroneously under-report or over-report your Canadian taxable income. Under-reporting your taxable income may lead to monetary penalties, while over-reporting may result in excessive Canadian tax liability.
A residence-determination request is one measure for obtaining certainty when preparing your Canadian tax return. You can submit a residence-determination request to the
Still, the CRA's opinion is only as reliable as the details you provide. And the CRA's administrative view doesn't always correspond with
Moreover, the CRA's residence-determination forms (i.e., the NR73 and NR74 forms) ask rather intrusive questions about a taxpayer's finances and assets. So, you should seriously consider whether you want to send that information to the
Our experienced Canadian tax lawyers can provide you with advice on your status as a tax resident in
Furthermore, a change in your residence status may result in tax liability from a deemed capital gain or a penalty from failing to file a foreign-reporting information return (e.g., T1134, T1135, T106, T1141, or T1142).
These reporting requirements don't entail tax liability. So, many taxpayers mistakenly consider them to be unimportant. But the Income Tax Act imposes steep penalties upon taxpayers who fail to file a required foreign-reporting information return. For example, a simple failure to file can result in a penalty of up to
An application under the Voluntary Disclosures Program (VDP) may allow you to avoid these penalties. Contact one of our expert Canadian tax lawyers to discuss whether a voluntary disclosure is a viable option.
For more information on determining your status as a tax resident, see our article "Tax Residence in
For information on the tax residence of a corporation, see our article "Determining the Residence of a
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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