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 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.

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 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.