Principal Issues
- How an individual’s residency status is determined for Canadian income tax purposes.
- The impact of residency status on tax liability and availability of tax credits, including the foreign tax credit.
Position
- The determination of residency status is a question of fact based on all relevant circumstances.
- Individuals who are resident in Canada are taxable on worldwide income and may be eligible for foreign tax credits.
- Individuals who are non-resident are generally taxable only on Canadian-source income, and withholding tax may represent their final tax liability in certain cases.
Reasons
The liability for Canadian income tax is based on an individual’s residency status, which must be determined having regard to all relevant facts and circumstances.
An individual may be considered either a factual resident or a deemed resident of Canada under section 250 of the Income Tax Act.
Factual residency is determined based on the individual’s residential ties with Canada, including significant ties such as:
- a dwelling place,
- a spouse or common-law partner, and
- dependants in Canada.
Where an individual has no significant residential ties with Canada, the individual will generally not be considered a factual resident of Canada.
Individuals who are resident in Canada are subject to tax on their worldwide income, including income from foreign sources.
Where foreign taxes are paid on such income, a foreign tax credit may be available under section 126 to reduce double taxation.
Conversely, individuals who are non-resident of Canada are generally taxable only on Canadian-source income, including certain types of income subject to Part XIII withholding tax.
In many cases, where appropriate withholding tax has been applied, such tax represents the final tax obligation, and the individual may not be required to file a Canadian income tax return.
Where an individual’s residency status changes during a taxation year, special rules may apply to determine income inclusion and tax credits for the relevant period.
Limitations
The determination of residency status and the availability of tax credits, including the foreign tax credit, are fact-specific and depend on a comprehensive review of all relevant circumstances.
These comments are general in nature and do not constitute a binding ruling.
Written confirmation of the tax implications of a specific situation is provided only where the transactions are the subject of an advance income tax ruling request submitted in accordance with CRA administrative procedures.
