6 May 2009 External T.I. 2009-0311951E5 F - Résidence au Canada pour fins fiscales
Principal Issues: [TaxInterpretations translation] What are the tax consequences for a non-resident of Canada who returns to settle in Canada in 2009?
Position: General discussion only.
Reasons: Income Tax Act.
XXXXXXXXXX 2009-031195
F. Bordeleau, LL.B.
May 6, 2009
Dear Sir,
Subject: Residence in Canada for tax purposes
This is further to your letter of February 25, 2009 in which you sought our opinion as to how a taxpayer's residency status may affect tax liabilities arising from the application of the Income Tax Act (the "Act").
In particular, you cited the situation of your son who became a resident of Bermuda in September 2007 in order to take up employment in Bermuda. Effective June 2009, your son will be returning to Canada. For the 2009 year, you wish to know how his employment income earned upon his return to Canada will be treated.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act ("Act").
Our Comments
The situation you have indicated in your letter is an actual situation that concerns a specific taxpayer. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to provide written opinions on proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you.
The Act levies a tax on the taxable income of persons who are subject to it. Subsection 2(1) subjects any person resident in Canada at any time in the year to tax on the person’s taxable income. Generally, a resident is subject to income tax on the resident’s world income. For an in-depth discussion on the determination of a person's residence status, we invite you to consult Interpretation Bulletin IT-221R3 - CONSOLID, Determination of an Individual's Residence Status, at the following web page: http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/READ-ME.html.
On the other hand, a person who is not resident in Canada is subject, under section 115 of Part I of the Act, to tax on the taxable income earned in Canada. The income to be reported for this purpose includes income from an office or employment in Canada (including directors' fees and employment benefits), income from carrying on a business in Canada, taxable capital gains from the disposition of taxable Canadian property and certain other Canadian source income.
Where an individual is a resident of Canada for only part of the year, section 114 provides for the tax treatment applicable to that individual. Under this section, an individual who satisfies certain conditions will be taxed in Canada on the individual’s income for the year: for the part of the year during which the individual was a non-resident, the individual's income for the year will be computed under section 115, which renders taxable income earned in Canada by non-residents subject to the Act. In addition, the application of section 114 gives rise to certain particularities in computing income, allowable deductions, personal tax credits and foreign tax relief. It should be noted that the scope of section 114 may be modified by a tax convention concluded by Canada with another country, although such a convention between Canada and Bermuda does not exist.
In addition, whether a taxpayer is a resident of Canada for part or all of a taxation year (from January 1 to December 31), the taxpayer must file an income tax return if the taxpayer is in one of the following situations:
- The taxpayer owes tax;
- The taxpayer wishes to receive a refund because the taxpayer overpaid tax in a taxation year.
Even if the taxpayer has no income to report or tax to pay, the taxpayer may be eligible for certain credits or payments. The taxpayer must file an income tax return to receive the following credits or payments:
- the GST/HST (Goods and Services Tax/Harmonized Sales Tax) credit;
- Canada Child Tax Benefit payments;
- provincial or territorial tax credits.
For the taxation year in which a taxpayer is a newcomer to Canada, and for each year in which the taxpayer continues to be resident in Canada for tax purposes, the taxpayer must use the General Income Tax and Benefit Guide and forms book for the province or territory in which the taxpayer resided on December 31 of the particular taxation year. In addition, when a taxpayer immigrates to Canada, the taxpayer is generally deemed to have disposed of and immediately reacquired most of the property owned by the taxpayer on the date of immigrating. If the taxpayer ceased to reside in Canada after October 1, 1996 and returns to reside in Canada, the taxpayer may elect to amend the deemed dispositions that the taxpayer reported when the taxpayer emigrated.
For more information on these issues, we recommend that your son contact the International Tax Services Office to find out more about a taxpayer's tax obligations upon return to Canada. We also encourage him to consult the publication T4055, Newcomers to Canada, which is intended for people immigrating to Canada. This publication can be accessed through the Canada Revenue Agency's website at the following address: http://www.cra-arc.gc.ca/E/pub/tg/t4055/READ-ME.html.
We hope you find the above comments of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.