By Andrew Rogerson LLB (Hons) TEP
STEP Journal – September 2007
Andrew Rogerson discusses the Canadian approach to non resident status
A recent article by Tim Bennett helpfully analysed the problematic UK decision on tax non residency status in the case of Gaines-Cooper. At around the same time as this case was decided in England, the Chief Justice of the Tax Court of Canada (TCC) was taking the opportunity to restate Canadian law on this issue. His balanced decision makes it relatively easy for prospective non residents and immigrants to plan their affairs.
He was ruling in the case of Jean Maurice Laurin v The Queen (2006 TCC 634). Mr Laurin was an Air Canada pilot, who went to live in Belize and then the Turks and Caicos Islands. To perform his fl ying duties, he commuted back to Winnipeg and Vancouver, from whence he piloted international fl ights. He returned offshore after each fl ight. This frequency of return to Canada, whilst unusual, did not negate his non resident status.
If one spends 183 days or more in Canada then one will normally be regarded as resident for tax purposes. However, in order to overcome a fi nding of being ‘ordinarily resident’, even though spending much less time in Canada, one must cut necessary ties. A prime issue of concern is whether Canadian residents bound offshore must dispose of their home. The answer is ‘no’, but it should be rented out and/or not be available for their own use.
Availability of such accommodation is just one of the factors that the courts use to make a determination of ‘ordinary residency’. In Mr Laurin’s case, the Chief Justice approved cases of long standing that characterised ordinary residence as ‘the place in the settled routine of his life he regularly normally or customarily lives… (as opposed to)… a place where he unusually, casually or intermittently visits or stays’. The court held Mr Laurin to be a non resident of Canada notwithstanding that he:
- is a Canadian citizen;
- carried a Canadian passport;
- regularly visited his three children and four siblings resident in Quebec;
- made trips to Winnipeg several times a month to command international fl ights;
- overnighted at hotels before and after international fl ights;
- maintained Canadian individual private pension schemes (called RRSPs); and
- maintained membership of the Canada Pension Plan.
Secondary Residential Ties
Each case depends on its facts. Obviously most cases never reach court and the main role of the professional adviser is that of persuading the Canada Revenue Authority (CRA). The fi rst point of reference the CRA uses in evaluating ordinary residence is whether one retains a home in Canada for one’s own use. In Mr Laurin’s case, this was determined in the taxpayer’s favour by the Chief Justice. Absent such a home, the CRA takes into account what are known as ‘secondary residential ties’. Secondary residential ties that will be taken into account in determining the residence status of an individual while outside Canada are:
- personal property in Canada (such as furniture, clothing, automobiles and recreational vehicles);
- social ties with Canada (such as memberships in Canadian recreational and religious organisations);
- economic ties with Canada (such as employment with a Canadian employer and active involvement in a Canadian business, and Canadian bank accounts, retirement savings plans, credit cards and securities accounts);
- landed immigrant status or appropriate work permits in Canada;
- hospitalisation and medical insurance coverage from a province or territory of Canada;
- a driver’s licence from a province or territory of Canada;
- a vehicle registered in a province or territory of Canada;
- a seasonal dwelling place in Canada or a leased dwelling place;
- a Canadian passport; and
- memberships in Canadian unions or professional organisations.
The CRA are transparent as to their approach and say as follows in document IT 221R3: ‘Generally, secondary residential ties must be looked at collectively in order to evaluate the signifi cance of any one such tie, therefore, it would be unusual for a single secondary residential tie with Canada to be suffi cient in and by itself to lead to a determination that an individual is factually resident in Canada while abroad.’
In addition to the above, problems may arise in regard to terms in a contract that provide for re-employment in Canada upon completion of a contract overseas. The exact contractual position should be carefully reviewed well in advance.
It is possible to obtain an advance ruling from the CRA as to residency status by completing form NR73. The ruling will be based on the facts as disclosed prior to departure. Although the ruling will cease to have effect if individual circumstances change, it is nevertheless a most useful document to obtain on behalf of one’s client.
At the other end of the spectrum, a very valuable five-year exemption from Canadian income tax exists for immigrants who settle assets into an offshore trust.
Although Canadians are generally modest people, they continue have a major impact internationally, in roles such as oil executives, accountants, bankers, teachers and hockey players as well as the ‘traditional’ role of peacekeepers. At the present time, 1.5 million Canadian citizens are living and working overseas. Canada is also a very favoured destination for immigrants from countries across the world. Tax planning opportunities abound in both directions.
Andrew Rogerson TEP is a Toronto lawyer practicing in off shore trusts and estate planning.