Canadian Tax Residency: Advice for People Moving In, Moving Out and in Between

The Income Tax Act does not define resident. The courts have held that an individual is resident where they, in the settled routine of their life, regularly, normally or customarily live. The CRA's guidance (Folio S5-F1-C1) looks first at significant residential ties: a home in Canada, a spouse or common-law partner in Canada, and dependants in Canada. Secondary ties include personal property such as cars and furniture, social and economic ties, a provincial driver's licence, provincial health coverage, Canadian bank accounts and credit cards, and memberships.

Separately, a person who sojourns in Canada for a total of 183 days or more in a calendar year is deemed resident for the whole year if they would not otherwise be resident. Government employees, armed forces members and certain others posted abroad can also be deemed resident.

It is common to be considered resident by both Canada and another country under their domestic laws. Canada's tax treaties contain tie-breaker rules that look, in order, at where you have a permanent home, your centre of vital interests (personal and economic relations), your habitual abode and your nationality. A person who is resident in another country under a treaty tie-breaker is deemed non-resident of Canada for Canadian tax purposes.

Treaty residence analysis is fact-intensive, and the CRA frequently challenges it. Documenting your living arrangements and the timing of your move is important.

When you cease to be resident, section 128.1 deems you to dispose of most property at fair market value, which can trigger tax on accrued gains even though nothing was sold. Canadian real estate, Canadian business property and registered plans such as RRSPs and TFSAs are generally excluded from the deemed disposition but have their own rules for non-residents. Emigrants can elect to defer payment of departure tax by posting acceptable security, and must report property over certain thresholds on Form T1161.

After departure, Canadian-source income such as rent, dividends, pensions and RRSP withdrawals is subject to non-resident withholding tax, generally 25% unless reduced by treaty. Non-residents who sell Canadian real estate must generally obtain a clearance certificate under section 116, and buyers may be required to withhold part of the purchase price if one is not provided.

The CRA may assert that someone who believed they had left Canada remained resident, and reassess years of worldwide income. These disputes turn on evidence of ties and intentions. We represent clients in residency audits, objections and Tax Court appeals, and help those who have not filed in Canada assess whether they should, including through voluntary disclosure where appropriate.

People who become resident in Canada are generally treated as having acquired most of their property at fair market value on arrival, which means gains that accrued before immigration are not taxed in Canada. Documenting the value of foreign property at arrival can save significant tax when it is later sold. From the date of residence, however, worldwide income must be reported, including foreign rent, interest, dividends and pensions, with foreign tax credits available for tax paid abroad in many cases.

Newcomers frequently overlook foreign reporting obligations. Form T1135 must be filed when the total cost of specified foreign property, such as foreign bank accounts, shares and rental property, exceeds $100,000 at any time in the year, although relief applies in the year a person first becomes resident. Inheritances, gifts and transfers from family abroad can also attract CRA questions, especially when funds are used to buy real estate in Canada.