4 February 2005 External T.I. 2004-0083241E5 - Residency of Canadian citizens in Saudi Arabia

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.

Principal Issues: Whether Canadian citizens who send their spouse, children and personal effects to Canada from Saudi Arabia will become resident in Canada for purposes of the Income Tax Act.

Position: None taken, but general explanation of the law given.

Reasons: It will depend on the individual's particular circumstances.

S. Craig Bale
Counsellor (Administration) and Consul
Canadian Embassy							T. Cook
P.O. Box 94321, Diplomatic Quarter					(613) 946-4165
Riyadh, Saudia Arabia						2004-008324

February 4, 2005

Dear Mr. Bale:

We are writing in reply to your email of June 28, 2004. We apologize for our delay in responding. Your email states that the security situation in Saudi Arabia has deteriorated markedly and as a consequence, the Canadian Embassy has advised Canadians who feel their security threatened to consider leaving the country. You also state that the majority of Canadians (by which we presume you mean citizens of Canada) in Saudi Arabia are "declared" non-residents for tax purposes and they are concerned that their tax status would be affected by sending their families to Canada. You have received a number of enquiries with respect to the tax status of individuals, and they appear to raise a few common questions:

? What would be the residency status of individuals who choose to remain living and working in Saudi Arabia while relocating their families to Canada?

? If the families of such individuals remain in Canada for a prolonged period of time (including the registration of children in schools), what would be the impact on the individual's residency status?

? Can personal effects be shipped to and stored in Canada without affecting an individual's residency status?

Further, it is your understanding that during the 1991 Gulf War, Canadians evacuated from the Gulf Region to Canada were granted income tax exempt status for a short period of time.

Our Comments

As a preliminary matter, we note that no special tax exemption was granted during the 1991 Gulf War; consequently the comments made below reflect our general views on residency for purposes of the Income Tax Act (the "Act"). Based on your email we understand the following to be a fair summary of the type of situation being encountered:

? A Canadian citizen who is a non-resident of Canada for purposes of the Act works in Saudi Arabia and lives there with his or her spouse, children and personal effects;

? In response to the deteriorating security situation, that individual sends his or her spouse, children and personal effects to Canada;

? The person does not accompany his or her spouse and children to Canada and instead remains in Saudi Arabia and continues to live and work there; and

? Because of the security situation, the spouse, children and personal effects may remain in Canada for a lengthy period.

The issues are then whether, and at what point if any, the individual becomes a resident of Canada for purposes of the Act. The term "resident" is not defined in the Act so the determination of whether a particular individual is a resident of Canada for purposes of the Act is made by reference to various judicial tests. The views of the CRA with respect to residency and applying these judicial tests are set out in detail in Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status, which can be found on our website at www.cra.gc.ca. We also enclose a copy. The presence of a tax treaty between Canada and another country may affect residency determination; but there is no tax treaty between Canada and Saudi Arabia so the only residency tests that would apply in this case are those relevant for the Act.

Whether a particular individual is a resident of Canada is a question that can only be answered in light of all the facts of the situation. In general terms though, we would normally expect that if a person's spouse, children and personal possessions are all in Canada, the person's aggregate residential ties to Canada would likely be significant enough for him or her to be a resident of Canada for purposes of the Act.

We also recognize, however, that there may be exceptions to this general presumption. In both Kadrie v. The Queen, 2001 DTC 967 (T.C.C.) and Shih v. The Queen, 2000 DTC 2072 (T.C.C.), the Tax Court of Canada held that the taxpayer appealing was not resident in Canada even though the individual had a spouse, children and dwelling place in Canada. In both cases there were facts that demonstrated that the settled routine, or ordinary mode, of the taxpayer's life was outside Canada and therefore, the taxpayer was not resident in Canada. For example, in Shih, the taxpayer remained in Taiwan to work and care for his elderly parents while his wife and children moved to Canada for the sole purpose of obtaining a Western education for the children.

The facts of Kadrie are more on point with your questions. Mr. Kadrie was a Canadian citizen, and he was resident in Canada until 1977. He then moved to Kuwait and lived and worked there until 1994. His parents remained in Canada. Mr. Kadrie lived in Kuwait with his wife (a Jordanian national) and three children until August 1990. Mr. Kadrie and his family were vacationing in Canada when the Gulf War broke out in 1990. Mr. Kadrie immediately went to New York and then Dubai, Kuwait to provide management assistance to his employer. His wife and children remained in Canada and were unable to join him because of her nationality. Mr. Kadrie tried to get his wife and family back into Kuwait but was unable to do so, and in 1995 he finally gave up his position and joined his wife and family in Canada. The Tax Court held that Mr. Kadrie had severed his residential ties with Canada in 1977 and did not reacquire them until he moved back to Canada in 1995. We enclose a copy of the Kadrie decision. Whether the situation of an individual living and working in Saudi Arabia who relocates his or her spouse, children and personal effects to Canada falls in line with the rationale of the Kadrie decision would depend on all the circumstances of the particular individual.

As a final matter, you indicate that the majority of Canadian citizens in Saudi Arabia are "declared" non-residents for tax purposes. We are unsure what you mean by "declared non-resident". Although the International Tax Directorate of the CRA does provide opinions on residency, the only determination that is actually binding on the CRA is a ruling issued by the Income Tax Rulings Directorate and this Directorate has not issued any rulings regarding the residency of Canadian citizens living and working in Saudi Arabia. We have no information that allows us to comment on whether or not the Canadian citizens are non-residents of Canada in the period before their spouses, children and personal effects are relocated to Canada. But we would note that it is our view that it is certainly possible for a Canadian citizen who leaves Canada to live and work abroad for some period of time, to maintain enough ties with Canada to continue to be a resident of Canada for purposes of the Act while doing so.

We trust these comments will be of assistance.

Yours truly,

Olli Laurikainen
Manager
International Section II
For Director
International Tax and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch