Where do you live? This may seem like a simple question, but it has become increasingly difficult to answer in our globalized society. Many individuals travel frequently throughout the year for work or family reasons and maintain homes in multiple countries. Your residence status must be analyzed to determine your income tax filing requirements.
Canada has a residency-based tax system. Residents of Canada are taxable on their worldwide income from all sources each year while non-residents of Canada are generally only taxable on income earned from sources inside Canada. Residency is assessed under two primary methods: you may be ordinarily resident throughout the year, otherwise known as factual residence, or you may be a deemed resident.
Factual residence is the place where you regularly live. There are three significant ties to consider when analyzing factual residence: where your home is, where your spouse or common-law partner lives and where your dependants live. Your home may be owned or leased as long as it is available for your occupation. If Canada is the answer for each, then you are most likely a factual resident of Canada. However, this analysis may be inconclusive in many situations such as if you do not have a home available to you, have multiple homes in different countries, do not have a family or if your family travels with you during the year. In this case secondary ties must be considered. These include the location of personal property such as a car or furniture, social ties such as memberships in recreational or religious organizations, economic ties such as bank accounts or credit cards, driver’s licenses, passports or health insurance coverage.
You may also be a deemed resident of Canada. The sojourner rule applies to individuals who have not established residential ties in Canada but spend 183 days or more in Canada throughout the year and are not considered a resident of another country per the terms of a tax treaty. A day for this purpose includes any day or part of a day spent in Canada including working days, study days and vacation days. Days spent in Canada by commuters who travel for work each day and return to their home in another country each night are excluded for this purpose. Other deemed residents may include members of the Canadian armed forces and government employees who lived outside Canada throughout the year but did not establish residential ties elsewhere. Deemed residents are taxable on their worldwide income for the full year in the same manner as factual residents at the federal level. Deemed residents are not considered to be resident of a province and are subject to a federal surtax in place of provincial taxes.
Each country establishes their own rules for determining residency. You may be considered a resident of multiple countries per the laws of each country. In these situations, we must rely on the tie-breaker rules in the applicable income tax treaty or agreement to determine residency. These rules typically rely first on where the individual’s permanent home is and then on their centre of vital interests. The centre of vital interests assessment is similar to the significant and secondary ties discussed in the factual residence section. However, these rules vary depending on the terms of each tax treaty or agreement and need to be assessed on a case-by-case basis.
Determining your residency and filing requirements can be a particularly complex issue during the year of immigration or emigration. You will often be considered a part-year resident of both Canada and another country and need to determine the specific date that you established or severed residential ties. You will likely have to file tax returns in both countries for the year and in some situations may need to file multiple tax returns in the same country for the year. It is important to contact us prior to your move so we can plan accordingly and ensure you file timely and accurate income tax returns.
So where do you live? You and multiple governments may not always agree on the answer.
For more information, please contact email@example.com or 1 844-GYTD-CPA