27 August 1993 Administrative Letter 9323666 F - Tax Treaty Negotiation Seminar (HAA 4093-U5-100-4)

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.

MEMO FOR FILERulings Directorate

Tax Treaty Negotiation Seminar (August 30 to September 3)

Summary of Canadian Residence Concepts (Appendix A)

Summary of the XXXXXXXXXX Case (Appendix B)

Ken Major was asked to give a lecture concerning Articles 4 & 5 of the OECD Model Income Tax Convention in the above mentioned seminar organized with CIDA assistance for the XXXXXXXXXX The attached Appendixes were prepared, on an informal basis, as a handout for the participants during Mr. Major's lecture. The summaries may be of some use to the Directorate in the future.

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

APPENDIX A

Concept of "Residence" in Canadian Taxation

Residence of Individuals

The meaning or interpretation of the term "resident" or "residence" is not defined in the Income Tax Act. For Canadian income tax purposes the matter of residence, excluding certain deeming provisions under the Income Tax Act (e.g. individuals who sojourn in Canada for 183 days or more in a calender year are deemed to be resident in Canada throughout the entire year), is a question of fact. The Canadian court system has held that an individual is resident in the place where he, in the settled routine of his life, regularly, normally or customarily lives. That quality is chiefly a matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living. While the following list does not purport to be exhaustive, material factors include:

1) Permanence & Purpose of the Stay Abroad

-     must be a degree of permanence to absence from Canada - return to Canada foreseen at time of departure - guaranteed employment upon return to Canada - status with Employment and Immigration Canada

2) Residential Ties Within Canada

-     dwelling place (or places) - spouse and dependants - friends and family - personal property (furniture, automobile, clothing, etc.) - economic ties (employment, union membership, business, investments) - financial services (bank accounts, credit cards, safety deposit box) - social ties (membership in professional, social, recreational, or religious organizations) - provincial and private medical coverage - social security coverage - driver's licences - telephone listings - subscriptions to newspapers and other periodicals - Canadian burial plots

3) Residential Ties Outside Canada

-     everyone must be resident somewhere - it is possible to be a dual resident

4) Regularity & Length of Visits to Canada

-     status generally not affected by occasional return visits to Canada - return visits on a regular basis may indicate a continuing resident

Residence of Corporations

Like individuals, the Canadian residence status of corporations, for purposes of the Income Tax Act and excluding certain deeming provisions (e.g. corporations incorporated in Canada are generally deemed to be resident in Canada), is a question of fact.  Under the common law test of residence corporations are generally considered to be resident in Canada if their mind, management and control is in Canada. As a general rule, the mind, management and control of a corporation is situated where the members of its Board of Directors meet and exercise control. However, if the Board of Directors of a company does not in fact exercise its powers, and the management and control of the company is actually exercised by some other party, such as the directors of its parent company or its principal shareholder, who are resident in another country, the company will be resident in that other country. In cases where the only substantial connection a corporation has with a particular country is that the meetings of the Board of Directors are arranged there, the case would be examined carefully to determine where in fact control is exercised which may likely be elsewhere.  Factors such as the location of the business and the assets of the corporation are generally given very little weight. Similarly, the residence status of the shareholders of the corporation is generally irrelevant (unless the shareholder in fact exercises control of the company - see comments above) to the determination of the corporation's residence.

Meaning of "Centre of Vital Interest" in Canada's Income Tax Conventions

Like residence determinations for an individual, a centre of vital interest determination, in all situations, must be based on an analysis of all the facts. There is very little jurisprudence on the issue of "centre of vital interest", however, what little jurisprudence there is generally places preference on the personal ties to a particular country. Generally, once we have undertaken an analysis of all the facts and have determined that the personal ties to both states are relatively equal, then we will place our emphasis on the individuals economic ties.

When analysing the personal and economic ties of an individual for purposes of the centre of vital interest test, we analyze the situation over a period of time and not just the period of time of dual residence. It is arguable that if you were to determine a person's centre of vital interest for a specific point in time the place where he is present at that point in time would likely be his centre of vital interest. Such an approach would, arguably, render the centre of vital interest test meaningless. Accordingly, when analysing the personal and economic ties to both countries, it is not enough to simply weigh or count the number of factors or connections to each state but to determine the depth of the roots of one's centre of vital interests which encompasses looking at the factors over a period of time.

APPENDIX B

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