26 April 2002 External T.I. 2001-0096415 - Residency, departure date

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: determining date when resident becomes non-resident

Position: when taxpayer acquires a permanent home in the U.S.

Reasons: tie-breaker rule

XXXXXXXXXX 2001-009641
D. Yuen
April 26, 2002

Dear XXXXXXXXXX:

Re: Deemed departure date

We are writing in response to your letter dated August 9, 2001 wherein you requested our comments in respect of the situation described below. Unless otherwise stated all references to a statute herein are to the Income Tax Act (Canada), R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Situation

1. A is an individual who is both a Canadian and U.S. citizen.

2. In year 1, A and his spouse, B, move to the U.S. to attend graduate school.

3. B applies for a "green card" while in the U.S.

4. A maintains significant economic ties (other than a permanent home) and substantially all of his investments in Canada while awaiting the outcome of the application for the "green card". It is your position that A will be considered resident in Canada for purposes of the Canada-U.S Income Tax Convention (the "Convention").

5. B obtains her "green card" in year 2 and A decides to remain in the U.S. after graduation and to move his economic interests to the U.S.

6. In year 2, A will be physically present in the U.S. for more than 183 days. It is your view that A will be treated as being resident in the U.S. under the U.S. Internal Revenue Code (the "Code") for the entire year.

Question

What is A's departure date from Canada?

Your Comments

You feel that there are three possible departure dates in the above situation: January 1 of year 2 since this will coincide with A being considered resident in U.S. under the Code for the entire year; the "green card" issuance date being the date A changed his intentions regarding residence; and December 31 of year 2, being the time at which residency under the Convention is determined. You have concluded that the departure date is the "green card" issuance date when A changed his intention to return to Canada.

Our Comments

We have assumed that A and B acquired a "permanent home" in the U.S. at some point in time after their arrival in year 1. A "permanent home" (as that term is used in income tax treaties) may be any kind of dwelling place that the individual retains for his or her permanent (as opposed to occasional) use, whether that dwelling place is rented or purchased or otherwise occupied on a permanent basis.

Since A is a U.S. citizen and is therefore not considered an alien under the Code, he will not be subject to the "substantial presence test" which is apparently used to determine whether an alien is taxable as a resident or non-resident alien. As a U.S. citizen, it is our understanding that A is liable to tax under the Code on the most comprehensive basis and will therefore be resident in the U.S. under paragraph 1 of Article IV of the Convention (i.e., before the "tie-breaker rule" in paragraph 2 of that Article is applied) for so long as he maintains that citizenship.

As long as A is also resident in Canada under the Act, A will be considered a "dual resident" of Canada and the U.S. for purposes of the Convention. In such a case, the "tie-breaker rule" under the Convention will be used to determine A's residence for treaty purposes. Assuming A's personal and economic relations are still closer to Canada than the U.S. at that point, it is our view that A will be considered to have become resident in the U.S. under the "tie-breaker rule" when he and B acquired the permanent home in the U.S. Upon that occurrence in either year 1 or year 2, A will have become resident in the U.S. under the Convention and therefore would be deemed to be a non-resident of Canada pursuant to subsection 250(5) and that time will be considered A's departure date from Canada.

If A and B did not have a permanent home in either Canada or the U.S., we are unable to provide meaningful comments on how the Convention would apply in reference to a hypothetical situation because this would require full knowledge of all of A's personal and economic relations (that is, the second "tie-breaker rule" for individuals under the Convention) on a continuous basis.

These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC 70-6R4 dated January 29, 2001 issued by the Canada Customs and Revenue Agency (the "CCRA") and are not considered binding on the CCRA.

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch