Determining Residency for Tax Flashcards
How are the different individuals taxed?
- residents: worldwide income for the year
- part-year residents: worldwide income for that part they were residents
- non-residents: taxed on Canadian sourced income
What are the primary facts in determining residency?
dwelling place in Canada is maintained for use
spouse lives in Canada
Dependants are in Canada
What are the secondary factors in determining residency?
Are personal property kept in Canada (car, clothes, furniture)
Social (club memberships)
economic ties (employment, involvement with business, banks and credit cards, saving plans, RRSPs and RPPs and TFSAs)
What is defined as a Factual residence or common-law resident
There is a continuing state of relationship between a person and Canada
What are some indicators that someone is still a resident if they’re on a temporary leave of absence from Canada
Intention to sever ties, visits by taxpayer to Canada, established residential ties outside of Canada
What are deemed residents?
They’re taxed in Canada for the full calendar year for their worldwide income but they live in Canada for a total of 183 days or more, member of the Canadian armed forced, or an ambassador, minister, commissioner, officer, or servant of Canada
What is the difference between Sojourners (temporary) vs part-year residents?
Part-year residents is an individual who becomes or ceases to be a resident at some point in the year vs Soujourns who travels in and out of Canada for at least 183 days in the year
Date of becoming a non-resident
It is calculated as the later date of:
- date of the individual who leaves Canada
- date of the individual’s spouse and/or dependants leave Canada
- the date of the individual becomes a resident of the new country he or she has emigrated to
What are the tax consequences of becoming a non-resident
They have deemed disposition of most assets at the fair value on the date of non-resident. But there are exceptions:
- Canadian real or immovable property and Canadian resource property
- business property, including an inventory of a business, carried on through a permanent establishment in Canada
- registered pension plans, including personal and employer-sponsored plans, deferred profit-sharing plans, and tax-free savings plans
Of the exceptions, discuss why the first two are exempt?
They’re referred to as taxable Canadian propety - taxpayers can elect to have a deemed disposition at the time they become a non-resident.
they would only want to make this election if they had the capital or other losses they would not be able to use.
If it results in allowable capital loss, it may only be deducted against taxable capital gains that arise as a result of the deemed disposition. It may not be deducted against taxable capital gains arising from actual dispositions.
What factors are used when determining what to tax non-residents?
If they were employed, carried business in Canada or had disposed of taxable Canadian property, they’re liable for those points. If they receive Canadian-source pensions, annuities, management fees, interest, rents or royalties, they will have Part XIII tax which is withheld at 25% of gross.
Are deemed dispositions for personal property allowed a loss?
There are loss restrictions on personal property. Losses are exempted and cannot be deducted unless it is a hobby related item (jewelry, art, coin collections, stamps, rare things, old things, coins)
However, gains are taxable if they’re over $1,000.
When is a corporation deemed resident in Canada?
If it was incorporated in Canada after April 26, 1965 or if before and it carried business in Canada or was a resident under common law after 1965.
Corporation - common law principle
If they have central management and control is located in Canada, even if they were not incorporated in CAnada, they’re still considered a resident of Canada
