Ruling on Residency

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.

Ordinary Residency

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:

  1. is a Canadian citizen;
  2. carried a Canadian passport;
  3. regularly visited his three children and four siblings resident in Quebec;
  4. made trips to Winnipeg several times a   month to command international fl ights;
  5. overnighted at hotels before and after   international fl ights;
  6. maintained Canadian individual private   pension schemes (called RRSPs); and
  7. 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:

  1. personal property in Canada (such   as furniture, clothing, automobiles and   recreational vehicles);
  2. social ties with Canada (such as   memberships in Canadian recreational and   religious organisations);
  3. 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);
  4. landed immigrant status or appropriate   work permits in Canada;
  5. hospitalisation and medical insurance   coverage from a province or territory   of Canada;
  6. a driver’s licence from a province or   territory of Canada;
  7. a vehicle registered in a province or   territory of Canada;
  8. a seasonal dwelling place in Canada or a   leased dwelling place;
  9. a Canadian passport; and
  10. memberships in Canadian unions or professional organizations.

The CRA is 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 significance of any one such   tie, therefore, it would be unusual for a   single secondary residential tie with Canada   to be sufficient 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 provides for re-employment in Canada upon   completion of a contract overseas. The exact contractual position should be carefully reviewed well in advance.

Advance Ruling

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 to 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 favored 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.