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Have COVID-19 Travel Restrictions Affected Your Tax Residency?

October 10, 2020

By Boris Stanislav, Associate, and Felix Wu, Associate, Farber Tax Law

Because of the COVID-19 pandemic, countries around the world have closed their borders and imposed stringent travel restrictions. Because of these restrictions, foreign individuals may have found themselves stuck in Canada, or Canadian citizens may be forced to remain abroad until travel becomes available.

Undoubtedly, this has had a considerable impact on the international tax regime. As will be discussed in this article, Canada’s test for tax residency primarily revolves around either a calculation of days (i.e. sojourning) or through residential ties. In consideration of our new realities, the CRA released and continues to update its guide to international income tax disputes.1

Tax residency in Canada under the Income Tax Act (the “ITA“) is not as simple as considering one’s citizenship. Instead, an individual can either be a deemed resident or a factual resident.

Deemed Residency: The Sojourner Rule

Under subsection 250(1) of the ITA, a person can be deemed resident for a taxation year if they have “sojourned” in Canada in the year for a period of, or periods the total of which is, 183 days or more. There are other criteria pertaining to specific occupations, such as being an ambassador, minister, provincial servant or a member of the Canadian Forces. The definition of “sojourn” was further discussed by the Tax Court of Canada in Thomson v Minister of National Revenue:2

A reference to the dictionary and judicial comments upon the meaning of these terms indicates that one is “ordinarily resident” in the place where in the settled routine of his life he regularly, normally or customarily lives. One “sojourns” at a place where he usually [sic], casually or intermittently visits or stays. In the former the element of permanence; in the latter that of the temporary predominates.

In other words, in the case that an individual has been in Canada for at least 183 days in the year – even if casually or intermittently – they can be deemed as a Canadian tax resident under subsection 250(1) of the ITA.

Because of COVID-19 travel restrictions, an individual may have been forced to extend their stay in Canada, to the point where they exceeded the 183-day “limit” as set out in the sojourner rule under subsection 250(1) of the ITA. The CRA has indicated that the sojourner rule regarding the number of days an individual has stayed in Canada will not be the sole factor which causes the CRA to deem someone as resident in the light of COVID-19 restrictions. As stated by the CRA:

As an administrative matter and in light of the extraordinary circumstances, the CRA will not consider the days during which an individual is present in Canada and is unable to return to their country of residence solely as a result of the travel restrictions to count towards the 183-day limit for deemed residency. This will be the CRA position where, among other things, the individual is usually a resident of another country and intends to return, and does in fact return, to their country of residence as soon as they are able to.

While the statutory provision under the ITA remains in place, the CRA is recognizing that the laws in place, especially those regarding strict timelines, cannot be applied arbitrarily to these novel situations. It stands to reason that an individual who sufficiently demonstrates that they are in Canada as a result of an unintended extended stay, may be shown some leniency by the CRA. However, it will be interesting to monitor the extent to which the CRA polices an individual’s factual return to their country of residence “as soon as they are able to”.

Factual Residency – Residential Ties

Under subsection 250(3) of the ITA, a person can also be found to have been “ordinarily resident” in Canada if Canada does not have a tax treaty with the other jurisdiction. The Courts have developed a broad set of considerations in order to determine whether a person has in fact established a tax residence in Canada, including past and present habits of life, regularity and length of visits in the jurisdiction asserting residence, ties within that jurisdiction, ties elsewhere, and permanence or otherwise of purposes of stay abroad.3

As a result of the decision in Thomson, the CRA developed policies summarizing the general factual consideration into two categories – significant residential ties (i.e. primary ties), which include an individual’s dwelling place (or dwelling places), the location of their spouse or common-law partner, and the location of their dependents.

The consideration of all other factors is in the latter category known as secondary residential ties, which include the extent to which the individual:

  • has personal property (e.g. furniture, clothing, automobiles, recreational vehicles) in Canada;
  • has social ties with Canada (e.g. memberships in Canadian-based recreational or religious organizations);
  • has economic ties with Canada (e.g. employment with a Canadian employer, active involvement in a Canadian business, Canadian bank/investment/savings accounts, credit cards, etc.);
  • has landed immigrant status and/or appropriate work permits in Canada;
  • has hospitalization and medical insurance coverage from a province or territory in Canada;
  • has a driver’s license from a province or territory in Canada;
  • has a vehicle registered in a province or territory in Canada;
  • has a seasonal or leased dwelling place in Canada;
  • has a Canadian passport; and
  • has memberships in Canadian unions or professional organizations.

With regard to the “ordinarily resident” test as established in Thomson and codified by the CRA in Income Tax Folio S5-F1-C1, the CRA’s new guidance does not offer a direct response. One can only assume that per their guidance regarding the sojourner rule, the CRA would look leniently on any residential ties (especially secondary residential ties) that have been swayed to increase an individual’s connection to Canada, but was done solely as a result of the individual’s extended stay due to COVID-19 travel restrictions.

Tax Treaties – Tie-Breaker Rules

Canada has many tax treaties with other countries that contain “tie-breaker rules” which analyze a person’s circumstances to determine which of the two countries should be deemed as their country of residence for tax purposes. These tie-breaker rules may be used in lieu of the factual residency test under subsection 250(3) of the ITA.

Under the Organisation for Economic Co-operation and Development (“OECD“) Model Tax Convention guidelines,4 which have been adopted into a majority of Canada’s tax treaties with foreign jurisdictions, the hierarchy in determining an individual’s residency based on the tie-breaker rules is as follows:

  1. If the individual has a permanent home in only one of the two countries, that country would be deemed the individual’s country of residence.
  2. If the individual has a permanent home in both countries, the individual’s country of residence is based on their “center of vital interest“, which considers factors such as their family and economic ties (i.e. employment, bank accounts, etc.)
  3. If the first two tests cannot be used to determine the individual’s residency (i.e. they have a permanent home in both jurisdictions, and they have equal interests in both countries), the country of residence is deemed to be the one they habitually reside in.
  4. If the individual habitually resides in both countries, the determination is made based on the individual’s nationality.
  5. In the case that the individual’s country of residence cannot be solved by any of the first three factors and is a dual citizen, it will be up to the countries to mutually agree which country taxes the individual as a country of residence.

Corporate Tax Residence – Central Management and ControlPer subsection 250(4) of the ITA, a corporation can be deemed as resident in Canada if it was incorporated after April 26, 1965, or if after April 27, 1965, it was resident in Canada under common law principles and carried on business in Canada.

The common law principles regarding corporate tax residency focus on a corporation’s “central management and control”. If a corporation has its central management and control in Canada, they will be deemed resident and therefore their income will be taxable under Canadian income tax laws.

Among other factors, the CRA and the Courts will examine which jurisdiction the meetings of the board of directors take place. As a result of COVID-19, many of us have adapted to working from home and attending business meetings through Zoom or teleconference call methods. This can potentially cause a board of directors to hold their meeting while most of the members are physically present in Canada, rendering the “central management and control” of the corporation in Canada, and making the corporation potentially resident for tax purposes.

In some cases, an existing tax treaty between Canada and another jurisdiction may already address dual residency issues that have arisen due to travel restrictions, by way of tie-breaker rules. For example, the CRA highlights that where a US entity created as a S-corporation or C-corporation can rely on the corporate tie-breaker rules under Article IV of the Canada-US Tax Treaty to deem it as US resident rather than Canadian.

To address the impact of these travel restrictions in addition to existing tax treaties, the CRA has clarified that it will not consider a corporation to become resident in Canada solely for the reason that their central management and control has shifted to Canada due to travel restrictions. In scenarios where no treaties apply, corporate residencies involving potential dual residency issues will be determined by the CRA on a case-by-case basis.

Corporate Tax Residence – Permanent Establishment

Another important consideration due to COVID-19 relates to non-residents which may have been forced to carry on their business temporarily in Canada. The concern with this practice relates to the existing rules in many Canadian tax treaties which hold non-residents liable for Canadian tax based on profits attributable to a “permanent establishment”.

Generally, a “permanent establishment” includes any fixed place of business (e.g. a warehouse, branch, factory, office, etc.). However, a “permanent establishment” may also be present where an entity’s employees or agents execute their duties in the name of the non-resident. To address these issues, the CRA has clarified that it will not consider a non-resident entity to have established a permanent establishment, if the entity had to have employees or dependent agents perform their employment duties in Canada due to travel restrictions.

In the case of Canada and the US specifically, the Canada-US Income Tax Treaty defines a “services permanent establishment” where an individual is present for 183 days or more. Similar to the CRA’s treatment of the sojourner rule for individuals as mentioned above, the CRA has clarified that it will exclude the days in which the establishment is present solely on the basis of COVID-19 travel restrictions.

In the case where no tax treaty applies (i.e. the other country in which the entity would be resident does not have a tax treaty with Canada), the CRA will have to consider on a case-by-case basis, but has indicated that they will look leniently based on the restrictions on travel.

Cross-Border Employment Income

Under many tax treaties including the Canada-US Income Tax Treaty, an individual who is resident in the other country but works in Canada will not be subject to Canadian income tax on their employment income, if the income is less than $10,000 CAD, or the person is present for a period not exceeding 183 days in any 12 month period (i.e. sojourner rule) and the remuneration is not paid by or on behalf of a person resident in Canada or a permanent establishment in Canada.

Conversely, there are situations where a non-resident may employ a Canadian resident. In such cases, the employer is required to withhold tax for services which are performed in Canada. The employer may factor in foreign tax credits which the employee is entitled to, provided that the employee obtains a letter of authority from the CRA via Form T1213 Request to Reduce Tax Deductions at Source.

Because of the travel restrictions, situations may have arisen where a Canadian resident who would otherwise typically return and work outside of Canada, is forced to perform their employment duties in Canada for the time being. This may influence the non-resident employer’s withholding obligations, as the employee’s tax liability will likely change.

In such cases, the CRA has stated that as long as the employee has received a letter of authority indicating that they are required to perform their duties of employment in Canada on a temporary basis. Such letters will continue to apply to reduce the withholding obligations of the non-resident employer, provided that the withholding obligations do not change in the employer’s country as well.


Although the CRA’s new guidance provides clarity and certainty for the time being regarding tax residency in Canada in the uncertain times of COVID-19, it is important to note that the statutory provisions and the tie-breaker rules established through tax treaties remain in place. Therefore. it remains to be seen how the analysis of section 250 of the ITA will be interpreted by the court system in the future. Most notably, individuals and corporations alike will have to wait for further guidance to determine what will be considered by the CRA and the courts as an appropriate time to leave Canada in light of travel restrictions being lifted. Given the uncertainty, it is important to be counseled by an experienced tax professional if you are stranded in an undesirable jurisdiction.


[1] “CRA and COVID-19: International income tax disputes”, Government of Canada, accessed online on September 15, 2020: <>.

[2]Thomson v Minister of National Revenue [1946] SCR 209.

[3]R. v Reeder, 1975 CarswellNat 163, [1975] C.T.C. 256, 75 D.T.C. 5160 (Federal Court – Trial Division).

[4] “The 2017 Update to the OECD Model Tax Convention”, OECD, accessed online on September 25, 2020: <>.