27 September 1991 Internal T.I. 9115647 F - Determination of Residency

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.

Re: Determination of Residency for 24(1)

This is in reply to your memorandum of June 7, 1991, in which you requested our comments concerning the determination of residence status for   24(1) 24(1) has raised the question of whether our departments will recognize their employees as non-residents of Canada where they have been transferred outside Canada ("abroad") for a 25 month period with employment guaranteed upon their return.

The problem, as we understand it, is with the interpretation of the department's administrative position described in paragraph 5 of Interpretation Bulletin IT-221R2 ("IT-221R2"). Paragraph 5 states "where an individual is absent from Canada for 2 years or longer, he will be presumed to have become a non-resident of Canada, provided he satisfies the other requirements for non-resident status outlined in paragraphs 6 to 12". The requirements outlined in paragraphs 6 to 12 are residential ties within Canada, residential ties elsewhere and regularity and length of visits to Canada. If any of these requirements is not satisfied, the presumption of non-resident status does not apply. It simply means an Analysis of all the facts must be made to make the determination.

The above interpretation of the proviso in paragraph 5 fits within the context of the bulletin   Paragraphs 6 - 9, 10 - 11 and 12 are intended to briefly describe the factors mentioned in subparagraphs 3(b), (c) and (d) of the bulletin and are attempting to clarify the department's position on certain common elements in residency determinations.  Further support for this interpretation is found in the following statement in paragraph 8:  " If such a person leaves Canada for 2 years or more and establishes a residence elsewhere, it is likely that he will be a non-resident of Canada during his absence unless other important ties within Canada indicate that he is not."

It is our understanding that the presumption of non-resident status is simply a guideline subject to rebuttal where the facts indicate resident status.  Since the proviso in paragraph 5 is limited to those factors outlined in paragraphs 6 to 12, the Department recognizes that other factors must exist in addition to the fact that an individuals return to Canada is foreseen at the time of departure in order to establish Canadian residence while abroad for a period in excess of 2 years.  The guideline is of benefit to those individuals who leave Canada for more than 2 years and sever all residential ties with Canada.

We would also like to point out that the above comments agree with the department's position on the 2 year guideline as given to Revenue Quebec in recent discussions on residency matters. In this regard we have attached copies of the English translation of correspondence submitted to Revenue Quebec.  Also enclosed is Revenue Quebec's new residency bulletin which clearly indicates that other factors as well as guaranteed employment upon return will be used to determine residency

In our opinion the employees of 24(1) the scenario presented to us have not satisfied the requirements outlined in paragraphs 6 to 12 of the bulletin for reasons explained below and thus should not be presumed non-resident

1.     Paragraph 6 of the bulletin states that a dwelling place is a  primary residential tie with Canada.

24(1)

It is our view that paragraph 7 of IT-221R2 is describing a residential tie with Canada that under certain circumstances will not prevent an individual from obtaining non-resident statue.  For example, if the relocation abroad is of a permanent nature and all other residential ties with Canada have been severed, then the fact that the principal residence was converted into a rental property will not prevent a determination of non-resident status.  This provision should not be interpreted to mean that an arm's length lease with a 3 month termination clause eliminates the dwelling from being considered a residential tie. In addition, paragraph 7 of IT-221R2 deals with a presumption of residence not non-residence.

2.     Paragraph 9 of the bulletin describes some of the secondary residential ties that must be considered in a determination of residence.  Specifically identified here are certain personal property ties to Canada (e g. furniture, bank accounts, credit cards) that have not been severed by the Employees

Accordingly, a determination of residence status must be made by an analysis of all the relevant facts.  The courts have held that an individual is resident in Canada if Canada is the place where he, in the settled routine of life, regularly, normally or customarily lives.

Based on the information provided.

24(1)

(i.e. ignoring their interpretation of interpretation Bulletin IT-221R2).  Our rationale for our inclination towards residency status can be summarized as follows:

1.     The relocation is of a non-permanent nature and a return to Canada in foreseen at the time of departure.

     The thrust of court cases through the 70's and 80's is quite clear.  Generally Canadian courts will not regard temporary absence from Canada even on an extended basis as sufficient to avoid Canadian residence for income tax purposes.  Time is no longer of the essence.  The temporary nature of the trip and ties within Canada have become the vital considerations.  Accordingly, where an individual leaves Canada, even for a period of two years or more, and the facts prove that his return to Canada is anticipated at the end of his stay away from Canada, this factor together with other existent factors (see below) must be examined to determine whether, taken as a whole, they are significant enough to conclude that the individual is not definitively severing his residential ties within Canada

2.     The individual has the assurance of resuming his functions with his employer upon returning to Canada or of being employed therein.  In our opinion, guaranteed employment upon an individual's return to Canada is a primary residential tie with Canada.  Upon review of the employment contract an additional factor may include the fact the individual   reserves the right to return to Canada or his employer reserves the right to call him back.

3.     The employees have chosen to rent their Canadian principal   residence while abroad.  Maintaining ownership of your house while abroad should generally be viewed as a continuing residential tie with Canada.  In spite of the fact the properties are rented to an arm's length party with a minimum of 3 months required for lease cancellation, the decision not to sell generally adds evidence to the non-performance of the relocation and indicates that the individual does not want to forfeit what was and will again become an integral part of his settled routine of life.

4      The employees have put their furniture into storage.

5.     The employees have kept banks accounts in Canada.

6      The employees have maintained credit cards with Canadian Financial institutions.

7.     24(1)

We would like to point out that 24(1) employees transferred abroad who do not meet; non-resident status while abroad will likely be eligible for the overseas employment tax credit pursuant to section  122.3 of the Income Tax Act.  Accordingly, an interpretation as suggested above does not appear to be in contradiction with tax policy and still results in a significant tax saving to these employees

21(1)(b)

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch