To be considered a tax resident of Canada, it is essential to understand the criteria established by the Canada Revenue Agency (CRA) as well as the legal and administrative rules governing this determination. This can have significant tax implications for both individuals and businesses. Below is a detailed guide on the criteria for tax residence and how to relinquish it.

1. How to Be Considered a Resident of Canada?

Tax residence in Canada is primarily determined based on facts and circumstances rather than a single fixed rule. The main criteria include:

Significant Residential Ties

  • Housing: Owning or renting a permanent home in Canada.
  • Family Relationships: The presence of a spouse, children, or other family members in Canada is a key factor.
  • Personal Property: Ownership of assets such as vehicles, furniture, or other personal belongings located in Canada.
  • Social and Economic Ties: Canadian bank accounts, driver’s licenses, membership in social clubs, participation in community activities, provincial health coverage, etc.

Other Residential Ties

  • Canadian mailing address
  • Canadian phone number
  • Membership in professional associations
  • Provincial health insurance

Extended Stay in Canada

Even without significant ties, a person may be considered a resident if they stay in Canada for 183 days or more in a tax year (the 183-day rule).

Deemed Residence

Deemed residents are those who spend more than 183 days in Canada and do not have permanent residence in another country with which Canada has a tax treaty.

Factual Residence

In some cases, a person may be considered a factual resident if their ties to Canada are strong enough, even if they spend less than 183 days in the country.

2. How to Relinquish Canadian Resident Status?

To cease being considered a Canadian resident, it is essential to sever most, if not all, residential ties. This includes:

Severing Significant Ties

  • Sell or terminate the lease of your Canadian residence.
  • Relocate your family and personal belongings outside Canada.
  • Close Canadian bank accounts and cancel Canadian credit cards.
  • Surrender provincial health insurance and driver’s licenses.
  • Cancel memberships in Canadian clubs, associations, and other organizations.

Official Departure Declaration

  • Notify the CRA of your departure and submit Form NR73 (Determination of Residency Status) if necessary.
  • Indicate your departure date in your tax return for the relevant year.

International Tax Treaties

  • Check if you can benefit from “tie-breaker” rules in a tax treaty between Canada and your new country of residence to avoid double taxation.

Taxable Income After Departure

Even after ceasing to be a resident, certain Canadian-source income may remain taxable in Canada, such as capital gains on taxable Canadian property, pensions, rental income, and dividends.

3. Tax Consequences of Departure

Upon ceasing to be a Canadian resident, you may be subject to a departure tax, which is essentially a tax on deemed capital gains on most of your worldwide assets. Strategic planning is crucial to minimize this tax burden.

If you have questions about tax planning for relinquishing Canadian residency or establishing residence in Canada, it is recommended to consult a tax lawyer or an accountant specializing in international taxation to ensure all steps are properly followed.