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May 19, 2024

Tax Tips

Leaving Canada
Subject: Emigrating
Number: 10-30
Date: 12/10/2010
The Canada Revenue Agency has been attacking claims of Canadian non-residence

If you are leaving Canada permanently, you will want to ensure that you become non-resident for tax purposes.

Most individuals leaving Canada permanently move to a country that has a tax treaty with Canada. There are about 90 such treaties currently in force. For the individual to claim to be a non-resident of Canada for tax purposes once he or she has left, the taxpayer will usually claim that he or she is resident in the other country for tax purposes.

Canada’s tax treaties provide that, if an individual is resident in both countries, the individual is considered resident in only one or the other for tax purposes. The treaty normally includes a series of tests to decide the country of residence. The first test is whether the individual has a “permanent home” in one country and not in the other. That test is frequently the key to determination of residence. If that is not determinative, the second test is where the individual’s “centre of vital interests” is located, next comes the individual’s “habitual abode,” then his or her nationality.

Recently, the Canada Revenue Agency (CRA) has been attacking claims of Canadian non-residence by asserting that the relevant tax treaty does not apply, because the individual is not “resident” in the other jurisdiction in the first place. If the CRA succeeds with this position, then the treaty will have no application, leaving the individual still resident in Canada for tax purposes.

The Supreme Court of Canada has held that, for the individual to be tax resident in the other jurisdiction, he or she must be taxable on the most comprehensive basis of taxation in the other country.

In consequence, it is essential that an individual who is leaving Canada take all the necessary steps to ensure that he or she is taxable on the most comprehensive basis in the new country of residence. Even more important is the need to ensure that there is proof of that taxability, sufficient to convince the CRA. Absent such proof, the CRA is likely to force the individual to appeal to the Tax Court of Canada to prove Canadian non-residence. Several such appeals have been lost because of lack of sufficient evidence to prove comprehensive taxation in the other country.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.