Monday, January 9, 2012

Where am I a considered a "resident"?

Which country and province am I a resident of? The answer depends on factors such as residential ties (where you, your spouse, your kids live) and secondary ties (property, memberships, employment, etc).

- If you're a resident of Canada, you're taxed on your world income and eligible for all personal amounts.

- Even if you've lived/worked/traveled abroad during the year, you may be considered a factual resident of Canada. In this case, you're still considered a resident. Keep in mind the Overseas Employment Tax Credit which shelters you from double taxation (80% of foreign earnings).

- Dual residents complete tax returns in both countries. This is if the individual is a resident of both countries. See Example 1 below.

- If you've moved to or from Canada during the year, pro-ration rules apply to make sure you are not double-taxed. You would be considered a part-year resident. If at least 90% of their world income is earned in Canada they get full amounts. If less than 90% no personal amounts may be claimed.

- Deemed residents are foreigners who have lived in Canada for at least 183 days. Members of the armed services serving overseas are also considered deemed residents.  If income can't be allocated to a province, it goes to the federal government again (48% of federal tax).

- Non-residents have not established residential ties to Canada, but still have to file Canadian tax returns IF they earned income, received scholarships, grants, etc in Canada. Income is subject to a 25% withholding tax.

Example 1Example 1: Sojourner - Visitor from the United States
Tannis has been visiting in Canada from her home in Iowa for 235 days. Under Canada's law, Tannis is deemed to be a resident of Canada because she was physically present here for 183 days or more during the year. She must, therefore, file a Canadian tax return and report world income in Canadian funds.
However, Tannis will also be subject to tax on her worldwide income under US domestic law. In this case, the tie-breaker rules under the Canada-US Tax Treaty will be invoked, which will determine Tannis' residency. If Tannis maintains a permanent home in the U.S., she will almost certainly be found to be resident of the U.S., notwithstanding her extended stay in Canada.
Even if Tannis is found to be a resident of the US, she may still be subject to tax in Canada. For example, if she earned employment income in Canada, that income would likely be subject to tax in Canada. (The Canada-US Tax Treaty provides only limited exceptions to the rule which generally allows the host country to tax employment income.)

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