12 November 1992 Income Tax Severed Letter 9231882 - Dual Residents

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.

923188
19(1) Jim Wilson
(613)957-2123

November 12, 1992

Dear 19(1)

We are writing in reply to your letter dated October 19, 1992, concerning your tax status in Canada. 19(1)

The following general comments may be of some assistance:

• 1. The liability for tax under the Canadian tax system is based on residency.
• 2. An individual will be considered a resident of Canada when he is either a factual or deemed resident of Canada. Factual residency is not defined in the Income Tax Act but is based on common law principles of residency and concerns the residential ties which an individual has in fact established within Canada. In this regard we have enclosed Interpretation Bulletin IT-221R2 which explains the Department's position regarding determination of an individual's residence status.
• A deemed resident of Canada would include an individual who is not a factual resident of Canada but one who has sojourned in Canada

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• in the year for a period of, or periods the aggregate of which is, 183 days or more. We emphasize that the 183 day test applies on a calender year basis and individuals present in Canada for only one school year (e.g. September to June or in your case 19(1)) may not meet this test in either calender year.
• All individuals entering Canada who require a determination of residency status should complete form NR74 (copy attached) and send it to the address provided on the top of the form. The International Taxation Office will then make a determination of the individual's residence status for purposes of the Income Tax Act. If you have any questions in this regard, a phone number has been provided on the form.
• 3. Individuals resident in Canada are liable for tax on their taxable income. Taxable income generally includes the individual's overall income (i.e. including income from employment, business, investments, pensions, etc.) from both domestic and foreign sources (i.e. world income). The applicable federal tax rates progress as taxable income increases. The British Columbia tax rate is a percentage of the basic federal tax.
• We have enclosed the "Tax Guide for New Canadians" that should answer most general questions. Also enclosed is a 1991 General Tax Guide and Return for Residents of British Columbia (note: the 1992 Guides are not available yet) which will provide you with information concerning the calculation of your federal and province of British Columbia taxes. It should be noted that the 1992 rates of tax and personal tax credits will be slightly different than that of the previous year.
• 4. Non-residents of Canada, on the other hand, are generally taxable in Canada on Canadian source income only (e.g. remuneration received in respect of an employment exercised in Canada).
• In both cases (i.e. residents and non-residents of Canada), Canadian tax implications are subject to all relevant income tax conventions.
• 5. As you are aware, there is a Convention between Canada and the U.K. for the avoidance of double taxation and the prevention of fiscal evasion (the "treaty"). Where provisions in the treaty are inconsistent with that of the domestic taxation law, the treaty provision will generally prevail. In order to interpret the treaty, it is necessary to determine which country you are a resident for tax purposes. Due to the temporary nature of your stay in Canada, you may be considered a resident of both Canada and the U.K.. You would have to contact the British tax authorities if you wish to determine your residence status in the U.K. while temporarily living in Canada. Where you are liable for

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• tax in both jurisdictions because of your residence, Article IV (copy enclosed) of the treaty provides a tie-breaker rule that will determine, for purpose of interpreting the treaty, in which country you will be considered resident.

It is not possible for the Department to determine the residency status of an individual for purposes of the tie-breaker rule without having all the specific facts. However, the first tie- breaker rule will establish an individual as a resident of the country in which he has a permanent home available to him. Any form of home may be taken into account (house or apartment belonging to or rented by the individual, furnished accommodations made available to the individual at all times continuously, etc.). Where the individual has a permanent home available to him in both countries or in neither country, he will be considered a resident of the country with which his personal and economic relations are closer (centre of vital interests). However, it should be noted that a determination of residency for purposes of the treaty will not change the individual's residence status for Canadian taxation purposes. Should such an individual be considered resident of the other country for the purpose of the treaty he is required to report his world income for Canadian tax purposes but is allowed to claim certain deductions from income or the resulting tax payable as provided in the particular treaty.

• 6. Pursuant to Article XV of the treaty (copy enclosed), regardless of which country the individual is considered a resident of for purposes of the treaty, Canada's right to tax remuneration received by an individual in respect of an employment exercised in Canada where the remuneration is paid by an employer who is a resident of Canada (e.g. 24(1)) will not be denied. The treaty may, however, affect Canada's right to tax other sources of income. In this regard we would need to know the nature of the income and the individual's resident status for both Canadian tax purposes and treaty purposes in order to provide some comments.

In summary, regardless of your residence status for Canadian tax purposes, you will be liable for Canadian tax on any remuneration paid to you by the 24(1) as an employee thereof. Income tax deductions withheld at source do not represent a definitive tax but rather the withholding is considered a payment on account of your overall tax liability. You would be required to file an income tax return by April 30, 1993 in respect of your 1992 taxation year. The 1992 tax return will include, among other sources of income depending on your residence status, all remuneration received from the 24(1) in 1992. You should receive a T4 slip from the 24(1) early in 1993 confirming these amounts. Your Notice of Assessment on your 1992 tax return should be adequate evidence of your Canadian tax liability for U.K. tax purposes. The same procedures would be carried out for the 1993 taxation year (i.e. you would be required to file a tax return for that year by April 30, 1994).

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We trust the above comments will be of assistance to you. If you require further assistance, please refer to page 27 of the "Tax Guide for New Canadians" which provides the telephone numbers with which you may call.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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