By John Mill LL.M. Windsor, ON
A Companion Advisor article

Canadians who move abroad are often uncertain as to whether or not they continue to have to pay tax in Canada . The basic rule is that if they continue to be a “resident” of Canada , they continue to be liable for tax on their worldwide income in Canada . Unfortunately, a recent court decision has again clouded the already difficult determination of residency for those who travel abroad, according to John Mill , a Canadian lawyer practicing in cross-border issues and a faculty member of the Knowledge Bureau.

“The test in Canada for residency is a “facts and circumstances” test that examines all of the facts and circumstances of a persons lifestyle to determine where their true home is, says John. “However, a ‘facts and circumstances' analysis can be quite offensive as the taxpayer is exposed to an insulting and often demeaning cross examination where every move, transaction and even small matters such as utility bills are viewed with suspicion.”

Because of this most tax treaties contain objective residency tie breaker rules to determine which country ought to claim residency. Tie breaker rules do not look at all ‘facts and circumstances' rather they look at simpler tests such as: where is the permanent home, where is the center of economic or personal interests; or where are the most days spent.

Unfortunately CRA has, in a number of cases, ignored the existence of the residency tie breaker rules found in tax treaties. A recent example can be found in the Karakochuk case released by the Tax Court in July of 2005. In that case CRA agreed that the taxpayer should be taxed as a dual resident. CRA did not point out to the Judge that the tax treaty, in this case with Australia , contained residency tie-breaker rules (Art.4(2)).

“This is disturbing for a number of reasons,” says John. “Firstly the Canadian government has an obligation to administer international agreements in “good faith”. Secondly CRA has an obligation to advise the courts accurately as to the law and thirdly individual taxpayers often don't consult international tax experts (in this case the tax involved was only $1,000.00) and consequently are not informed of the benefits they should be receiving, such as residency tie-breaker rules.”

The solution? “There should be a legal obligation that CRA must inform individual taxpayers of all of the tax treaty benefits that they are entitled to,” says John.

This information is used with the permission of it's publisher, The Knowledge Bureau Inc. For more information go to www.knowledgebureau.com.

Notice: Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments in this article are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein. Readers should seek advice that is appropriate to their personal circumstances from a professional advisor.

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