Residency Test

Residency question is very important to determine the tax liability of an individual. Canadian residents are subject to Canadian tax on worldwide income whereas non-residents are subject to Canadian tax on their Canadian income only.

The most important factor to be considered while determining the residence of an individual is whether the individual maintains the residential ties with Canada while living abroad. Residential ties could be significant or secondary in nature. Following are significant residential ties:

  • dwelling place (or places);
  • spouse or common-law partner; and
  • dependents.

Secondary residential ties include:

  • personal property in Canada such as furniture, vehicle, clothing, etc.
  • social ties such as membership of Canadian recreational or religious organizations;
  • economic ties with Canada such as employment, bank account, credit cards, etc.
  • hospitalization and medical insurance coverage from a province;
  • membership in a Canadian union or professional organization;

In case of dual residency, due to local laws of both the countries, special tiebreaker rules will apply under the tax convention between both the counties. The key point in these situations is that an individual can’t be a resident of two states for tax purposes and has to be a resident of either state under the tiebreaker rules.

Conclusion:

Residency question is never easy and has to be decided on a case by case basis by looking at all factors affecting an individual’s situation. Professional advice should be obtained in these circumstances.

Disclaimer: This article is for general awareness purpose and is not intended to provide or replace professional advice. The author doesn’t assume any liability for actions taken by readers.

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