December 12, 2023 | Blog
Residency in Canada
The Income Tax Act (ITA) does not give a specific definition for the term “resident”.
From tax expert Gerry Vittoratos
Framework for determining residency
The Income Tax Act (ITA) does not give a specific definition for the term “resident”. The basis of determining residency comes from jurisprudence, with the seminal case being Thomson vs Minister of National Revenue .
The main principles that came out of that case were:
· Determining residence is a fact-based investigation; 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.
· “ordinarily resident” [ITA 250(3)] means, “residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is, therefore, relevant to a question of its application”.
· Being physically present in a country is not enough to determine residency; the presence has to be continuous.
· It is not necessary to be constantly physically present in the country to be considered a factual resident; you can be temporarily absent and still be considered a resident.
A taxpayer can be a resident in two countries at once (treaty tie-breaking rules).
The CRA follows the principles laid out in this case to determine residency status.
Let’s flesh the principles of the Thomson case through that case and historical jurisprudence to arrive at the framework of determining residency in Canada.
A taxpayer, with the intention of returning to Canada in the future when departing the country, will usually be considered as a resident of Canada during their absence. The CRA will consider the departure as temporary in nature.
Length of time (absence)
The length of the absence is not an important consideration when determining residency. The more important considerations are the intention and the residential ties (see below) maintained or cut with Canada.
Continuity (frequency of visits)
The frequency and duration of visits is an important factor in determining residency. Frequent visits, and long duration of those visits will usually tip the scale towards Canadian residency. However, infrequent and short duration visits do not necessarily mean that there’s no Canadian residency; residential ties have to be taken into account.
Significant residential ties
What the CRA considers are the most important residential ties to Canada are:
· dwelling place (or places);
· spouse or common-law partner; and
When a taxpayer leaves Canada, owning or leasing a dwelling in Canada, available for his or her occupation, that dwelling place will be considered a significant residential tie with Canada during the individual's stay abroad [S5-F1-C1, par. 1.12]. The location of the dwelling place represents the most significant residential tie that the CRA will consider.
The same can be said for a taxpayer leaving Canada whose spouse and/or dependants remain, these individuals are also considered a significant resident tie to Canada [S5-F1-C1, par. 1.13]. This is especially the case when one spouse leaves the country for a work, and the other spouse/dependant(s) remain in Canada.
Secondary residential ties
Although not considered as important as the significant ties listed above, secondary ties can tip the scale when determining residency. Some of these ties include [S5-F1-C1, par. 1.14]:
· personal property in Canada (such as furniture, clothing, automobiles, and recreational vehicles);
· social ties with Canada (such as memberships in Canadian recreational or religious organizations);
· economic ties with Canada (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);
· landed immigrant status or appropriate work permits in Canada;
· hospitalization and medical insurance coverage from a province or territory of Canada;
· a driver's licence from a province or territory of Canada;
· a vehicle registered in a province or territory of Canada;
· a seasonal dwelling place in Canada or a leased dwelling place
· a Canadian passport; and
· memberships in Canadian unions or professional organizations.
Secondary residential ties must be looked at collectively in order to evaluate the significance of any one such tie [S5-F1-C1, par. 1.14].
Source: Jean-Pierre Vidal, Introduction to International Tax in Canada