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Canadian Perspectives - September 1998

The information in this edition of Canadian Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate as of September, 1998 but professional advice should always be obtained before acting on the information herein.

Canadian Residency: The Basic Rules

By Thomas Lee, LL.M, FHKSA

One of the most fundamental and yet most confusing aspects of Canadian income tax is the concept of residency. It is fundamental, because a person's liability for Canadian income tax is dependent upon whether or not they are resident in Canada. It is confusing because there is no real definition of residency.

It has been held that everyone must be resident somewhere, and that a person can be a dual resident (i.e. resident in more than one place).

You will be considered a resident of Canada if you have sufficiently close ties to Canada to constitute residency. In this determination, the most important factor is where you live. Having a house or an apartment in Canada, whether owned or rented, is a very significant residential tie. Other significant residential ties are where your spouse and dependent children live, where personal possessions are located, where you spend the majority of your time, where you work or have a business, your club memberships, and any other aspects of your day to day life.

In some immigrant families, one spouse may live in Canada with the children, while the other spouse continues to live and work in the country of origin. Revenue Canada's position, in general, is that both spouses are residents of Canada in this situation. It is generally not thought to be possible in a normal marriage to have one spouse resident of Canada while the other is a non-resident of Canada and resides overseas.

Having said this, the February 1998 Federal budget may change this for some people. Where an individual is a resident of a foreign country with which Canada has an international tax treaty, and under the definition in that treaty, the individual is a resident of the foreign country, then the individual will not be considered a resident of Canada. In the past, such an individual could have been considered a dual resident.

Canada has over 50 international tax treaties, including one with China. At the present time, Canada does not have treaties with Hong Kong or Taiwan, so this new rule will be of no use to such residents unless and until treaties are negotiated and come into force.