Tax Residence and Immigration to and Emigration from Canada

The immigration status of an individual in Canada does not determine their residency for tax purposes. Instead, the tax residence of a Canadian citizen or landed immigrant (a Canadian permanent resident) is determined by their social and economic connections with Canada, either actual or implied.

When an individual changes their tax residence status, the Income Tax Act deems the individual to dispose of their properties (with certain exceptions) at fair market value immediately before the change of tax residence. Where a persona emigrates from Canada, they may incur a significant income tax liability resulting from the deemed disposition of their properties at fair market value.

Canadian tax residence is determined by a variety of common law and statutory tests. Generally, all individuals present in Canada for at least 183 days in a year are deemed to be a tax resident in Canada and, as such, be subject to Canadian income tax on their worldwide income. Further, a person maintaining significant social and economic ties to Canada is considered to be a Canadian resident. For instance, the presence of a house and family in Canada may be sufficient to consider an individual to be resident in Canada.

Determination of an individual’s tax residence may be affected by the “tie-breaker” test in Article 4 (Residence) of a Canadian income tax convention. For example, where a person is a tax resident in both Canada and the U.S., the tax residence of the individual will first be determined by the place of his permanent home. Where an individual maintains a permanent home both in Canada and the U.S, the tax residence is then determined by the country to which the person’s personal and economic relations (i.e. the centre of vital interests) are closer. If the individual’s personal and economic relations are equal in both Canada and the U.S., the tax residence is then determined by the state in which they have a habitual abode. If the preceding tests are not conclusive, the tax residence is then decided by the competent authorities of the two states.