Determining your residency status is fundamental to assessing tax impacts. Why? Your liability for tax will depend on whether you’re a resident, or not. In Canada, resident individuals are generally taxed on their worldwide income – even if earned outside of Canada. A non-resident Canadian is generally liable for tax only on income sourced to Canada.
Factual Resident of Canada
Most individuals who are factual residents of Canada live and work there. Because there is no formal definition of a factual Canadian resident, practitioners often look to common law principles including primary and secondary factors.
Primary Factors
Primary factors impacting your residency status include the location of your home, spouse, common-law partner, or dependents and the frequency of your visits to Canada.
Secondary Factors
Secondary factors include the location of your personal property, social and economic ties, medical insurance coverage, landed immigrant status, and whether you have a Canadian drivers’ license or vehicle registered in a Canadian province or territory.
Deemed Resident
Individuals who are not factual residents of Canada may still be deemed to be a resident of Canada if present in Canada for more than 183 days in a given year. Deemed residency may also apply to military personnel stationed outside of Canada, who may still be deemed to be a Canadian resident.
Canada/US Tax-Treaty Residency Tie-Breaker
Now, from a Canadian perspective, an individual resident in Canada and the US may look to the Canada/US tax treaty tie-breaker rules for additional relief. An individual resident in both Canada and the US would apply the treaty tie-breaker rules in the following order:
1. Permanent Home
A taxpayer who is a resident of both Canada and the US may be considered to be a resident of the country in which they have a permanent home available for their use.
2. Center of Vital Interests
Individuals with a permanent home in both Canada and the US would then be considered a resident of the country to which they have closer economic and personal relations. An evaluation of ties to a country, as well as asset and business activities, may be considered at this step.
3. Habitual Abode
If a taxpayer also has strong economic and personal relations in both countries, they would then be determined to be a resident of the country in which they have a habitual abode.
4. Citizenship
If an individual also has a habitual abode in both countries, they would be a resident of the country of which they are a citizen.
5. Mutual Agreement
If it is still not possible to break an individual’s residency at this point, the next step would be to involve the relevant tax authorities in each country to help you decide.
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The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.