Canadian Residents and Worldwide Income
In Canada, we pay tax on worldwide income. Once you are considered a resident of Canada, then you are required to include worldwide income on your Canadian income tax return. For example, if you are a resident of Canada, you will pay tax on employment income in Canada and investment income earned in other countries. The key is to determine whether you are a resident of Canada. However, a taxpayer that would be considered a resident of Canada under the common law rules or the deeming rules (sojourning in Canada for 183 days or more) would not be considered a resident of Canada, if the taxpayer is considered a resident of another country under one of Canada’s international tax treaties.
US citizens and dual-resident
US citizens, on the other hand, will be required to pay tax based on citizenship. For example, a US citizen that is living abroad will be required to file a US tax return and a tax return for the country that the US citizen is now considered a resident.
It can be unclear whether a taxpayer is a resident of a particular country. Where it is unclear where the taxpayer is resident, hence a tax liability, the tax treaties have tie breaker rules to assist in the decision. For example, if it appears that the taxpayer is a resident of two countries, the tiebreaker rules allow the taxpayer to be a resident of one country.
Article IV(2) of the Canada-US tax treaty states that a dual-resident individual will be deemed to be a resident of the country where:
-
has a permanent home available to him; if he has a permanent home available to him in both countries or in neither country, he shall be deemed to be a resident of the country with which his personal an economic relations are closer (centre of vital interests);
-
If his vital interests cannot be determined, he shall be deemed to be a resident of the country which he has an habitual abode (stay of some substance in the jurisdiction as a matter of habit.... where the taxpayer normally lives – Federal Court of Appeal definition in the court case Lingle);
-
If he has an habitual abode in both countries or in neither, he shall be deemed to be a resident of the country of which he is a citizen;
-
If he is a citizen of both countries or of neither, the competent authorities of the countries
The recent Tax Court of Canada (TCC) case, Trieste, sheds some light on this issue. I will summarize the case below:
- taxpayer worked for Ontario Power Generation as an independent contractor
-
The taxpayer had a home in Ontario and in the United States
-
The taxpayer was a US citizen
-
His wife visited him occasionally in Ontario
-
The taxpayer stayed in Ontario for approximately 330 days for each year in question
-
The taxpayer had a car in Ontario but was insured with a US company and used his US driver’s license
-
The taxpayer had bank accounts in the US
-
The taxpayer had Canadian bank accounts and credit cards
-
The taxpayer visited his family approximately once a month in the US
I think you get the picture now; the taxpayer had residential ties in both countries. It is not easy to determine to which countries the taxpayer has a tax liability in the above situation. He was a US citizen; so he was required to file a US tax return. Was he required to file a Canadian tax return? The taxpayer did not consider himself a Canadian resident. Canada Revenue Agency (CRA) disagreed. The CRA considered the taxpayer a Canadian resident. The taxpayer had a permanent home in both countries, and his centre of vital interests was unclear. The TCC determined his “habitual abode” was in Canada. The TCC stated that he worked in Canada; he spent significant time in Canada; he did not work elsewhere during the period in question; and his settled routine was in Canada. Consequently, he was required to file a tax return in Canada.
Non-Resident or Canadian Resident?
Non resident Canadian income tax services needed? Canadian resident with federal income tax return preparation requirements for income earned abroad? US citizen working in Canada with Canadian income tax requirements. Where do you pay tax? Tax Doctors Canada has the answers! Tax Doctors Canada has extensive expertise in the area of international tax services with Canadian income tax return requirements.
Tax Doctors Canada offers a stress free Initial No Obligation Phone Consultation with one of our professionally certified tax accountants. We Welcome Your Business!
Tax Doctors Canada, a division of GTA Wealth Management Inc, has 3 office locations (by appointment only) in Toronto, Markham and Mississauga to serve you. You can also have one of our certified tax accountants assist you with your personal tax return requirements remotely from the comfort of your home utilizing Tax Doctors Canada's secure document transfer portal. We accept clients from Canada and worldwide.
