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: General residence question from Canadian citizen now working in Australia.
Position: Question of fact. Contact ITSO.
Reasons: n/a
XXXXXXXXXX Jim Wilson
2003-004285
November 4, 2003
Dear XXXXXXXXXX:
Re: Canadian Citizen Working in Australia - Residence for Canadian Tax Purposes
This is in reply to your letter of October 2, 2003, requesting information with respect to the tax status for Canadian tax purposes of two of your clients. In your letter, you explain that your clients are a married couple who are both Canadian citizens who have moved to Australia for employment. Your clients do not have jobs held for them in Canada and they both expect to stay abroad for at least another four years. You have provided us with other details of their current situation that may be relevant in determining their residence status.
The circumstances outlined in your letter relate to a specific fact situation. We note that written confirmation of the tax implications arising out of a particular fact situation are given by this Directorate only where the circumstances or events are the subject matter of an advance income tax ruling ("AITR") request. Generally, an AITR is only provided prior to the start of a transaction or prior to a particular situation arising. An AITR request requires the taxpayer to follow certain procedures and provide certain information, and it is subject to an hourly fee. Please consult our Information Circular IC 70-6R5, Advance Income Tax Rulings, for further information on our AITR system. Since your clients have already commenced employment in Australia, an AITR cannot be requested. Although our Directorate provides non-binding technical interpretations at no charge, in addition to AITRs, a technical interpretation is only available with respect to a hypothetical scenario. We can offer the following general comments, however, which may help you to determine how to proceed with your inquiry.
As you may know, Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status ("IT-221R3") sets out the Canada Customs and Revenue Agency's (the CCRA) comments with respect to determining residence status for Canadian tax purposes. This publication, along with the Information Circular referred to above, can be obtained from our website at www.ccra-adrc.gc.ca under the heading "forms and publications". We strongly recommend that you consult this publication (if you have not done so already) and then contact the International Tax Services Office (ITSO) with any further questions regarding your client's tax obligations and any filing requirements. We also recommend that you obtain and complete Form NR73, which is available from the website noted above. Once complete, this form should be sent to ITSO, to assist them in determining your client's residence status. Contact information for ITSO can be found in paragraph 27 of IT-221R3. We note that paragraphs 27 and 28 of IT-221R3 provide a brief overview and comparison of the services provided by ITSO and the Income Tax Rulings Directorate with respect to determining an individual's residence status.
After completing Form NR73 above, ITSO may determine that your clients have not severed their residential ties to Canada (i.e. they both remain factual residents of Canada while working abroad in Australia). However, based on the information that you have provided to us, it appears that your clients may be dual residents of both Canada and Australia. While we are not in a position to comment on their residence status under the domestic laws of Australia, we note that for them to be a resident of Australia for purposes of the Canada-Australia Income Tax Convention (the "Convention") they must each satisfy the criteria in paragraphs 1 and 2 of Article 4 of that Convention. This means that they must be liable to tax under the laws of Australia on income earned both in and outside of Australia.
In the event that your clients are dual residents of both Canada and Australia, their residence status for purposes of the Convention must be determined under the "tie-breaker rules" found in paragraph 3 of Article 4 of the Convention (please refer to paragraphs 25 and 26 of IT-221R3). If your clients have leased their only home in Canada to unrelated third parties (as you have indicated in your incoming letter) under arm's length terms and conditions, then it is quite possible that the first tie-breaker rule (i.e. the "permanent home" rule) will settle the tie in favour of Australia. In this regard, the dwelling (whether owned or leased) that your clients live in while in Australia will generally constitute a permanent home available to them in Australia for purposes of paragraph 3(a) of Article 4 of the Convention. Therefore, you may wish to consult paragraph 24 of IT-221R3, as subsection 250(5) of the Income Tax Act may apply and deem your clients not to be resident of Canada after they move to Australia. If subsection 250(5) applies, your clients will be considered to be a non-resident of Canada from the earliest date that it applies.
As a final note, individuals who cease to be resident in Canada (whether factually or because they become deemed non-residents of Canada under subsection 250(5)) are deemed to dispose of all of their property (with certain exceptions) upon leaving Canada. Any gains that arise as a result of this deemed disposition are taxable in Canada in the year of departure. Furthermore, income paid to a non-resident of Canada by a resident of Canada may be subject to withholding tax, depending on the nature of the income. For example, interest paid by a Canadian bank to a non-resident (including a deemed non-resident) will be subject to a 25% withholding tax. The actual rate of the withholding tax may be reduced by the terms of an income tax treaty such as the Convention.
Please contact ITSO to discuss the tax implications of your client's particular situation. For general tax information as well as access to useful pamphlets and guides designed specifically for persons emigrating from Canada, please visit our website at www.ccra-adrc.gc.ca and go to the link "Non-Residents" followed by the link "Leaving Canada (emigrants)". We refer you in particular to pamphlet T4056, Emigrants and Income Tax.
We trust that our comments will be of assistance to you.
Yours truly,
Jim Wilson
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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