January 05, 2023
By: Josiah Davis, Senior Associate, Farber Tax Law
Under the Canadian tax system, a person who is a resident of Canada is taxed on income earned worldwide from all sources within a tax year. A person’s liability for taxes in Canada is not dependent on their citizenship or immigration status. Instead, tax residence is determined according to Canadian tax legislation and case law. An individual may be either factually resident of Canada or a deemed resident of Canada. This is different from citizenship, and an individual’s tax residence is determined by the facts and circumstances of each case.
Factually resident of Canada
When someone leaves Canada for work, retirement, or study, they may continue to be subject to Canadian income taxation. An individual may be “factually” resident of Canada if their facts and circumstances show that their settled routine of life is in Canada. For example, a person may be a resident of Canada if they have significant residential ties to Canada. A “residential tie” is a phrase that describes social and familial connections to Canada. Residential ties include a spouse or common-law partner in Canada, children in Canada, or a house in Canada.
Secondary residential ties also contribute to the determination that a person is a tax resident in Canada. These are circumstances that, taken collectively, show that the person’s connection to Canada is central to their life. Examples of these secondary residential ties include:
- personal property in Canada (such as furniture, clothing, automobiles, and recreational vehicles);
- social ties with Canada (such as memberships in Canadian recreational or religious organizations);
- economic ties with Canada (such as employment with a Canadian employer and active involvement in a Canadian business, Canadian bank accounts, retirement savings plans, credit cards, and securities accounts);
- hospitalization and medical insurance coverage from a province or territory of Canada;
- a driver’s license from a province or territory of Canada;
- a seasonal dwelling place in Canada; or
- memberships in Canadian unions or professional organizations.
Other factors may also establish ties to Canada, such as a Canadian mailing address, post office box, or safety deposit box, personal stationery (including business cards) showing a Canadian address, telephone listings in Canada, and local (Canadian) newspaper and magazine subscriptions.
Taken together with the significant residential ties above, these factors contribute to the determination that an individual continues to reside in Canada despite living abroad.
If residential ties to Canada are established, an individual continues to be liable for income tax on the income earned from all sources.
Determining tax residency is a complex process. If you are unsure whether you are a resident of Canada for tax purposes, contact our lawyers at Farber Tax Law for a free consultation.