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Understanding Canadian Tax Residency

Jared Burns, CPA, CA

June, 2023


Determining tax residency is a key aspect of Canadian taxation. Here, we explore the factors that consider when establishing tax residency.


Understanding Canadian Tax Residency: How the Canada Revenue Agency (CRA) Determines Your Tax Status


Canada Day here and it’s without question one of the best days of the year. A reminder of how great it is to be a Canadian and live in this beautiful country. I remember Mr. Trudeau’s line “a Canadian is a Canadian is a Canadian”. It did make the concept of being a Canadian sound nice and simple. But, determining if you are a Canadian resident for taxes can be a complex procedure. This article will help if you travel out of country for work (especially to the point that you have a second house), plan to spend significant time abroad, or are about to return from another country after being gone for a while.


Determining tax residency is a key aspect of Canadian taxation. The Canada Revenue Agency (CRA) uses specific guidelines to determine whether an individual or a company is a resident for tax purposes. In this article, we will explore the factors that the CRA considers when establishing tax residency.


What is Tax Residency?


Tax residency refers to the status of an individual or entity that determines their tax obligations in a specific country. In Canada, tax residency is significant because residents are subject to Canadian income tax on their worldwide income, while non-residents are taxed only on their Canadian-sourced income.


Primary Factors for Tax Residency


Residential ties: The CRA considers factors like home ownership, duration, and regularity of stays in Canada, and presence of a spouse/common-law partner and dependents in Canada.


Economic ties: This includes employment or self-employment in Canada, membership in Canadian professional organizations, and Canadian bank accounts.


Social ties: The CRA assesses factors such as Canadian driver's licenses, health insurance, and involvement in Canadian social organizations.


Residential ties are a vital consideration in determining tax residency. The CRA evaluates the strength of an individual's residential ties to determine their level of connection to Canada. While no single factor is determinative, the combination and strength of these ties play a significant role in assessing residency. It's important to understand that each case is unique, and the CRA considers the overall picture of an individual's ties to establish tax residency.


The residency determination process by the CRA reviews all the information and documents provided to determine tax residency and its timing of becoming a resident or ceasing to be a resident of Canada. It evaluates factors like the length of stay in Canada, intention to establish a residence (emphasis on intention), and maintenance of residential ties in Canada. If there’s uncertainty about an individual's residency status, the CRA may request more information, such as immigration records or travel history, and information about other secondary ties, including aspects like property ownership, personal belongings, and social ties in another country.


Tax Treaty Tiebreaker rules


In cases where an individual may be considered a resident of both Canada and another country, tax treaty tie-breaker rules come into play. Canada has tax treaties with various countries to prevent double taxation. These rules decide residency based on factors like permanent home, center of vital interests, habitual home, and nationality. The tie-breaker rules can override the CRA in certain situations.


Concluding on tax residency is a complicated process. The CRA evaluates an individual's residential, economic, and social ties for their tax status. Understanding these issues is important for Canadian taxpayers to be in line with tax laws and avoid any potential issues. If you are not sure, you should reach out to your tax accountant or lawyer for guidance.


Author:

Jared Burns CPA, CA is the Director of Estate and Tax Planning with Louisbourg Investments. Submit your comments to jared.burns@louisbourg.net.





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This writing is for general information purposes only. It is not intended to provide legal, accounting, tax or financial advice. For complex matter you should always seek help from a professional. Any opinions expressed are my own and may not reflect those of Louisbourg Investments.

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