CVITP Assist: Residency for Income Tax Purposes

Sections 2(1) and 250(3) of the Income Tax Act requires that persons resident in Canada at any time of the year, including persons ordinarily resident in Canada, are required to pay income tax on their worldwide income while a resident, regardless of where it is earned.

A person could be resident part of the year and not a resident the balance of the year. In that case, the person is only required to pay tax on their worldwide income during the part of the year they are a resident of Canada. However, for the period they are a non-resident, they could be subject to non-resident tax (see below).

In Canada, being a ‘citizen’ or ‘permanent resident’ does not itself give rise to an obligation to pay tax. The obligation to pay is linked to residency. In the United States the situation is different: U.S. citizens and permanent residents (i.e. green card holders), by virtue of that status alone, are required to pay U.S. income tax (subject to tax treaty provisions if they are a tax resident of a foreign country).

If an individual is not a Canadian resident for tax purposes during all or part of a tax year (including deemed non-residents) but receives income from Canadian sources, that income is generally subject to Canadian withholding tax.

In most cases, non-residents do not have to file a Canadian income tax return. However, they must inform the Canadian payer of their non-resident status so the correct amount of tax can be withheld. The standard withholding rate is 25%, though tax treaties may reduce this for certain income types.

In some cases, a non-resident can choose to file a Canadian non-resident income tax return (Form 5013-R) to potentially reduce their tax liability. Failing to notify the payer of non-resident status—and thus avoiding withholding—can lead to a CRA assessment and penalties if discovered.^[1]

The Income Tax Act does not provide a definition for “resident” or “ordinary resident.” Instead, their meaning has been shaped over time through court decisions, including rulings from the Supreme Court of Canada—most notably the 1946 case Thomson v. MNR^[2]. Together, these rulings form what is known as the “common-law” definition, which is more a set of criteria and guidelines than a precise legal definition. The CRA’s interpretation of this common-law concept is outlined in Income Tax Folio S5-F1-C1.

Although perhaps a little obtuse, it is useful to quote the Thomson v. MNR decision:

residence is “a matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the place in question” and ordinary residence is “residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence”.

The usual approach to assess whether a person is resident in Canada is to assess a person’s significant residential ties. The most important considerations are:

In some situations, the determination is not easy, and reasonable people may reach different conclusions.

To fully understand what “resident” means, it can be useful to review past court cases, which illustrate how the courts and CRA address the issue in different circumstances.

The term “factual resident” does not appear in the Income Tax Act and is not a legal term. It is a designation used by the CRA to describe someone who has left Canada for an extended period but still meets the common-law definition of “resident,” particularly “ordinarily resident.”

A person can live outside Canada for months or years and still be considered a resident if they maintain sufficient ties to Canada. Examples include:

These individuals are considered factual residents if they keep strong residential ties during their absence. For instance, maintaining a home in Canada—whether owned or leased—is a significant residential tie. However, if the home is leased or subleased to an arm’s-length tenant while the person is away, it might not be a significant tie.

If there is evidence a person intended to return to Canada when they left, the CRA will place greater weight on any ties they retained in Canada when deciding if they remained a factual resident.

When an individual truly ceases to be a Canadian resident, the Income Tax Act generally requires them to pay tax on capital gains from the “deemed disposition” of most property (with some exemptions). The CRA may treat compliance with this rule as evidence that the person intended to permanently sever residential ties.

If someone leaves Canada claiming non-resident status but does not establish strong residential ties elsewhere, any remaining ties to Canada may be viewed as more significant—potentially causing them to still be considered a resident even though Canadian ties are weak.

Establishing substantial ties abroad does not automatically end Canadian residency. A person could meet the criteria for residency in two countries. If a treaty doesn’t exist to break the tie, a person could be a tax resident of more than one country at the same time.

Although the Income Tax Act does not define “resident,” section 250 sets out certain situations where a person is deemed to be a resident.

A person who does not have sufficient residential ties to be considered a factual resident will nonetheless be a deemed resident for an entire tax year if:

A deemed resident is taxed on worldwide income for the full calendar year, even if they were in Canada for only part of it. For example, someone who spent 250 days in Canada in one year would pay Canadian tax on all worldwide income for all 365 days.

Deemed residents do not pay provincial tax. Instead, they pay a federal surtax that works out to roughly the same amount. In UFile, “Deemed resident” is one of the selectable options for “Province of residence.” These individuals are not eligible for provincial refundable credits—such as the Ontario Trillium Benefit—even if they live in that province.

Important note: The 183-day test applies within a single calendar year. For example, if someone stayed in Canada from September 2024 to April 2025, the total stay exceeds 183 days overall, but not in either calendar year separately—so they would not be deemed a resident for 2024 or 2025.

A person who meets the common law definition of resident, or would meet the requirements to be a deemed resident, may nonetheless be deemed a non-resident of Canada if, under a tax treaty, tie-breaker rules apply and the person is deemed to be a resident of another country.

For example, if a person is in Canada on a work permit and they meet the common law definition of resident in Canada due to their ties to Canada, but they are also a tax resident of their home country, the person may, by the application of tie-breaking rules in a tax treaty, be deemed a resident of their home country and not Canada. In that case s.250(5) of the Income Tax Act deems the person to be a non-resident of Canada.

Typically, tax treaties provide that where a person meets the residence criteria of two countries, the person is deemed to be a resident in the country in which they have a permanent home.^[3] If the person has a permanent home in both countries or neither, then the tie-breaking rules typically call for an examination of the person’s comparative personal and economic ties with each country (sometimes called the ‘centre of vital interests test’). Most tax treaties follow one of the model treaties drafted by the OECD, U.N, or U.S., which are quite similar in many respects.

U.S. citizens and green card holders, by virtue of that status alone, are U.S. tax residents required to pay income tax on all their worldwide income regardless of where they live in the world. If a U.S. citizen or green card holder has significant residential ties in Canada and is also a tax resident in Canada, then tax liability is addressed in Canada’s tax treaty with the United States. The tax treaty will deem the person to be a tax resident of Canada or the U.S., but not both:

1. For the purposes of this Convention, the term "resident" of a Contracting State means any person that, under the laws of that State, is liable to tax therein by reason of that person's domicile, residence, citizenship, place of management, place of incorporation or any other criterion of a similar nature…

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Under paragraph 1 a U.S. citizen or green card holder resident in Canada qualifies as a resident of both the U.S. and Canada. According to paragraph 2(a) of the treaty, if that person has a permanent home in Canada and not the U.S. then they are deemed to have the status of a resident of Canada (and not the U.S) for tax purposes.

Note that although a U.S. citizen may be deemed not resident in the U.S. for tax purposes, they are subject to the same filing requirements as if resident in America. They must file a return and report worldwide income. The issue of whether a person owes tax, and whether they are required to file a tax return, are two separate issues.

For Canadian residents who are U.S. citizens, taxation is complicated by Article XXIX of the treaty, sometimes referred to as the “saving clause”. It lets the U.S. tax its citizens as if the treaty didn’t exist, but with some exceptions. This saving clause is not a feature of most other international tax treaties.

Most tax treaties use the phrase “permanent home” in their tie-breaker rules for determining residency. But what does this term mean? Based on court decisions, and commentaries on model treaties, the CRA considers a permanent home to be any kind of dwelling place that a person retains for their permanent (as opposed to occasional) use, whether that dwelling place is rented (including a rented furnished room) or purchased or otherwise occupied on a permanent basis. It is the permanence of the home, rather than its size or the nature of ownership or tenancy, that is of relevance.

Courts have relied on OECD commentary on a model treaty which states, as follows:

“…the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc).”

What if a person is in Canada to study or work for an extended period of time, say several years or more, and they rent premises in Canada. Suppose the person is not sure if they will want to return to their home country, and they can’t be sure if they will be allowed to stay in Canada after their permit expires. Is their rented premises a “permanent home”? The CRA and OECD explanations of the term do not seem to provide a very clear answer. However, the 2013 Canada Tax Court decision in Dysert v. R. clearly supports a conclusion that the rented premises is a permanent home.

In Dysert, three American engineers worked in Canada under work permits from 2004 to 2008 in leased premises. From the outset, the Americans had intended to return to the U.S. after working several years in Canada, and they did in fact return. The court found that the leased premises was a ‘permanent home’ in Canada under the tie-breaking provisions of the U.S.-Canada treaty:

[61] Similarly, I find that the Appellants’ Edmonton apartments rented by them for a duration intended to correspond to the length of their being in Edmonton, continuously available to them throughout that period, appropriately furnished by them for that purpose with parking arrangements for their cars, incorporating places to sleep, cook, relax, entertain and work, clearly constituted permanent homes for this purpose.

Where is a person’s centre of vital interests, for purposes of treaty assessment?

Under many treaties, if a person has a permanent home in both countries, or neither, then the tie-breaker rules provide that the person is resident in the country in which they have greater personal or economic relations, aka their ‘centre of vital interests’. But what does this mean? Courts and the CRA often quote commentary from the OECD on their model treaty:

“If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.”

This explanation calls for looking at a person’s family and social ties, occupation, political/cultural activities, place of business, property, and where the person habitually engages in daily life.

If a person’s centre of vital interests cannot be determined, the next test is to determine where the person’s habitual abode is. Generally, this is the place where a person regularly, customarily or usually lives.^[4]

Yes, this is possible. A person could meet the common law criteria for being a resident in Canada, and under the law of another country the person could meet their criteria for being a resident in that other country. If there is no tax treaty between Canada and the other country, then there is no potential tax-treaty provision that might deem the person to be a resident of just one or the other country for tax purposes (so as to avoid the potential for double taxation).

A person facing double taxation may be entitled to a foreign tax credit in Canada, but the credit is limited and may not entirely prevent double taxation.

In Thomson v. MNR, one of the Supreme Court judges says, "For the purposes of income tax legislation, it must be assumed that every person has at all times a residence."

In the 1995 court case Fisher v. R a person who moved from place to place and never filed a tax return anywhere. The judge rejected the person’s position that he was not a resident anywhere:

"It has been said on a number of occasions that for tax purposes everyone is assumed to be resident somewhere. This is, I think, less a statement of law than a recognition of a practical fact of life. Theoretically, it might conceivably be possible to be resident nowhere, if one kept constantly on the move, such as the captain of the legendary phantom ship, The Flying Dutchman, but in real life it really does not work that way. If one had to pick one place on earth where the appellant was resident in 1987 and 1988 that place would be, in my view, Canada."

A person’s status in Canada under the Immigration and Refugee Protection Act is not determinative of whether the person is resident or not for tax purposes. A refugee claimant, protected person, or temporary resident will be resident in Canada if, and only if, they meet the common-law definition of resident, or the criteria for a deemed resident.

When a newcomer comes to Canada claiming refugee status, they are not sojourning because it is not a temporary stay (or at least not intended to be), and therefore the ‘deemed-resident’ provisions of the Income Tax Act do not apply. Therefore, no matter what time of the year a newcomer arrives, they are a non-resident prior to arrival, and a resident upon arrival.

If a person arrives in the first half of a tax year, with an intent to study in Canada for a couple years before returning to their home country, they can initially be categorized as a deemed resident for the year since they have sojourned for 183 days or more in Canada. However, if the person is also a tax resident in their home country, then the tax treaty between Canada and the person’s home country would determine in which country they are a tax resident.

If a person was resident in different provinces or territories over the tax year, for tax purposes they are deemed to be resident in the province or territory in which they resided on December 31st of the tax year. For example, if a person lived in Alberta from January to mid-December before moving to Ontario, and the person resided in Ontario on December 31st, for tax purposes the person will be deemed a resident of Ontario for the tax year.

To be a “resident” in Ontario doesn’t just mean being physically present in Ontario, but rather, it means having significant residential ties (i.e. meeting the common law definition of resident at the time). It is possible that someone could be physically present in Alberta on December 31st, perhaps on a temporary job, but they resided in Ontario on December 31st.

It’s possible someone could be factually resident in more than one province or territory on December 31st, where they have significant ties to both. In that case, the person is deemed to be resident only in the province or territory in which the person has the most significant residential ties.

A deemed resident is not considered a resident of any province or territory, and they do not complete a provincial or territorial tax form.

If desired, before filing a tax return a person can submit form NR74 to the CRA and get a determination of residency status. The form requests detailed information and depending on circumstances the form could be quite a challenge to complete. The CRA may have follow-up requests for information before a determination is given. By getting a pre-determination a person greatly minimizes the risk of a future CRA reassessment rejecting the person’s determination of status. A determination is not binding on the CRA - they may change their mind if they somehow get new information.

[1] See, for example, the case of Triplett v. HMK 2024 Tax Court

[2] Thomson v. MNR (1946) has been cited in many subsequent decisions, and still continues to be cited and relied upon to this day. Some other useful cases include: Hamel v. The Queen (2011) and Perlman v. The Queen (2010)

[3] For purposes of the Treaty provisions, not necessarily for purposes of all the Income Tax Act provisions. In rare cases the distinction matters, as in Black v R (2014) Tax Court of Canada.