Meaning of “sojourn” (pp. 32:5)
In Thomson, the Supreme Court of Canada touched on the meaning of the word "sojourn" in obiter dictum, stating that "[o]ne 'sojourns' at a place where he unusually, casually or intermittently visits or stays". The Federal Court of Appeal affirmed this statement in Dixon [Footnote 29 – Dixon v R, 2001 DTC 5408, at para 6].
R & L Food Distributors [77 DTC 411] … [stated:]
… [I]t is obvious that coming from one country to work for the day at a place of business in another country and thereafter returning to one's permanent residence in the evening is not tantamount to making a temporary stay in the sense of establishing even a temporary residence in the country where the business enterprise is situate.
Significance of residential ties (p. 32:7)
[E]migrating Canadians should not leave an available residence behind, and should emigrate with their spouse and dependents.
Test of a permanent home available (p. 32:9)
In Salt, … [t]he appellant successfully argued that the tie-breaker rules deemed him to be resident in Australia because he had leased his house in Canada to an unrelated third party on arm's length terms and conditions, and therefore did not have a permanent home available in Canada. However, emigrating individuals should be wary of leasing their homes. The CRA's position is that a home in Canada that is leased to someone other than "a third party on arm's length terms and conditions" counts as a permanent home that is "available" to the individual. …
Test of centre of vital interests (p.32:10)
In Gaudreau, … the Court ruled that … 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 family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first state.
General effect of the s. 128.1(1)(d)(iii) limitation (p. 32:13)
[T]he emigrating individual may elect to expand the application of the deemed disposition provisions … to … Canadian real estate, Canadian resource property, Canadian timber resource property and certain property used to carry on a business in Canada... . This ... is generally used to realize latent losses that may offset departure tax gains. … Effectively, any losses realized on the deemed disposition of this property may be claimed and offset only against departure tax gains.
Scope of withholding exemption/reduced withholding for period pension payments (p. 32:15)
The Canada-UK treaty…eliminates withholding for periodic pension payments, which may be applicable to certain payments from RRSPs, RRIFs, RCAs and CPP and OAS benefits.
"Periodic pension payment" is defined in section 5 of the Income Tax Conventions Interpretation Act as a payment from a pension (for example, a registered pension plan, an RRSP, an RRIF, an RCA, CPP and OAS), subject to certain exceptions. These exceptions are primarily a lump sum payment, a payment before maturity, certain accelerated payments under an RRIF, and perhaps most importantly, a series of annual or more frequent payments to be made over the lifetime of the recipient or over a period of less than 10 years.
Conversion of trusts deemed disposition income into “designated income” for purposes of Part XII.2 (pp. 32:16-17)
If an emigrating individual's interest in a personal trust is exempted from the departure tax and is not subject to part XII.2 tax as discussed below, taxation of any inherent gains in the trust property may be deferred until its actual disposition and the gains may be subject to part XIII withholding tax rather than part I income tax. …
Generally, paragraph 104(4)(a.3) triggers a deemed disposition of the property held by a personal trust if a taxpayer transfers property to the trust and it is reasonable to conclude that the property was transferred in anticipation that the taxpayer would subsequently cease to reside in Canada, and then the taxpayer did subsequently cease to reside in Canada. This anti-avoidance rule is designed to preserve the integrity of the departure tax mechanism referenced above.
Furthermore, the conversion of the trust's deemed disposition income into "designated income" for purposes of part XII.2 tax prevent departure tax gains, which are taxed under part I, from being converted into trust income that is paid or made payable to non-resident beneficiaries at the end of the year and taxed under part XIII. Part XII.2 imposes a 40 percent tax on personal trusts that distribute (and deduct these distributions) to certain "designated beneficiaries", including non-resident beneficiaries. This tax is limited to the "designated income" of the trust, which includes only (1) taxable capital gains from dispositions of taxable Canadian property and property connected to the cessation of Canadian residence by a transferor, the spouse of the transferor, or a beneficiary of the trust; and (2) income from real or immovable properties in Canada (other than Canadian resource properties), timber resource properties, Canadian resource properties (other than properties acquired by the trust before 1972) and businesses carried on in Canada.
In addition to the 40 percent part XII.2 tax paid by the trust, the trust is still required to withhold and remit to the Canadian tax authorities 25 percent (or 15 percent if a tax treaty reduces the withholding rate) of any amounts paid or credited to its non-resident beneficiaries, resulting in an effective tax rate of approximately 49 percent. [Footnote 78 - $100 "designated income" less "40% part X1I.2 tax = $60 after-tax proceeds available to distribute less 25% (or 15%) = $45 or ($51) after tax proceeds.]