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Non-Resident or Canadian Resident - Canadian Income tax

Canadian Residents and Worldwide Income

In Canada, we pay tax on worldwide income. Once you are considered a resident of Canada, then you are required to include worldwide income on your Canadian income tax return. For example, if you are a resident of Canada, you will pay tax on employment income in Canada and investment income earned in other countries. The key is to determine whether you are a resident of Canada. However, a taxpayer that would be considered a resident of Canada under the common law rules or the deeming rules (sojourning in Canada for 183 days or more) would not be considered a resident of Canada, if the taxpayer is considered a resident of another country under one of Canada’s international tax treaties.

US citizens and dual-resident

US citizens, on the other hand, will be required to pay tax based on citizenship. For example, a US citizen that is living abroad will be required to file a US tax return and a tax return for the country that the US citizen is now considered a resident.

It can be unclear whether a taxpayer is a resident of a particular country. Where it is unclear where the taxpayer is resident, hence a tax liability, the tax treaties have tie breaker rules to assist in the decision. For example, if it appears that the taxpayer is a resident of two countries, the tiebreaker rules allow the taxpayer to be a resident of one country.

Article IV(2) of the Canada-US tax treaty states that a dual-resident individual will be deemed to be a resident of the country where:

  1. has a permanent home available to him; if he has a permanent home available to him in both countries or in neither country, he shall be deemed to be a resident of the country with which his personal an economic relations are closer (centre of vital interests);

  2. If his vital interests cannot be determined, he shall be deemed to be a resident of the country which he has an habitual abode (stay of some substance in the jurisdiction as a matter of habit.... where the taxpayer normally lives – Federal Court of Appeal definition in the court case Lingle);

  3. If he has an habitual abode in both countries or in neither, he shall be deemed to be a resident of the country of which he is a citizen;

  4. If he is a citizen of both countries or of neither, the competent authorities of the countries

The recent Tax Court of Canada (TCC) case, Trieste, sheds some light on this issue. I will summarize the case below:

  • taxpayer worked for Ontario Power Generation as an independent contractor
  • The taxpayer had a home in Ontario and in the United States

  • The taxpayer was a US citizen

  • His wife visited him occasionally in Ontario

  • The taxpayer stayed in Ontario for approximately 330 days for each year in question

  • The taxpayer had a car in Ontario but was insured with a US company and used his US driver’s license

  • The taxpayer had bank accounts in the US

  • The taxpayer had Canadian bank accounts and credit cards

  • The taxpayer visited his family approximately once a month in the US

I think you get the picture now; the taxpayer had residential ties in both countries. It is not easy to determine to which countries the taxpayer has a tax liability in the above situation. He was a US citizen; so he was required to file a US tax return. Was he required to file a Canadian tax return? The taxpayer did not consider himself a Canadian resident. Canada Revenue Agency (CRA) disagreed. The CRA considered the taxpayer a Canadian resident. The taxpayer had a permanent home in both countries, and his centre of vital interests was unclear. The TCC determined his “habitual abode” was in Canada. The TCC stated that he worked in Canada; he spent significant time in Canada; he did not work elsewhere during the period in question; and his settled routine was in Canada. Consequently, he was required to file a tax return in Canada.

Non-Resident or Canadian Resident?

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