Principal Issues: Whether CRA could introduce a simplified procedure to determine the residency status of individuals physically absent from Canada for a long period of time.
Position: No.
Reasons: The question of whether an individual is resident of Canada is a question of fact that can only be resolved after a detailed analysis of all of the relevant facts and circumstances in each case, including residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 11
Locked-in retirement account/Life income fund - Determining an Individual's Residency Status
Some pension legislation provides that after two years of non-Canadian residency, funds in locked-in retirement accounts ("LIRAs"), locked-in registered retirement savings plans ("LRRSPs") or life income retirement funds ("LIFs") cease to be locked-in and may be withdrawn without limitation or transferred to an unlocked retirement vehicle such as an RRSP or registered retirement income fund.
For example, a Regulation respecting supplemental pension plans states the following: [TaxInterpretations translation]
"The agreement establishing the locked-in retirement account must comply with the standard contract previously registered with Retraite Québec, which must provide:
(…)
(8.1) that the settlor may, unless the agreed term of the investments has not expired, require that the entire balance of the fund be paid to the settlor in a lump sum if the settlor has not resided in Canada for at least 2 years.
(…)”
In addition, Retraite Québec, which administers these plans, states in Pamphlet 2184-RCR, Getting to Know the LIRA and LIF, on page 13: [TaxInterpretations translation]
“2. You no longer reside in Canada
Regardless of your age, if you have been away from Canada for at least two years and the term of your investments has expired, you can get the balance of your LIRA or LIF paid out in a lump sum. You must apply to your financial institution, which will inform you of the proof of non-residency required.”
Thus, administratively, in order to remove the locking-in related to its accounts, the financial institution must request proof of the non-resident status of the annuitant concerned. Currently, financial institutions ask clients for confirmation from the Canada Revenue Agency (the "CRA") of their non-resident status. In this regard, only Form NR73 - Determination of Residency Status (leaving Canada) (footnote 1) is available to obtain this information. However, this form is very long, complex and is often intended for a taxpayer who is uncertain as to the taxpayer’s factual residence and wishes to obtain the CRA's opinion.
Question to the CRA
Could consideration be given to creating a simplified procedure for an individual who has been non-resident for several years to obtain confirmation of the individual’s status?
CRA Response
Under the Canadian tax system, the tax that an individual is required to pay on the individual’s income is determined in relation to the individual’s Canadian residency status. Residence status is generally based on the facts and circumstances of the individual's situation. Certain deeming rules in the Income Tax Act may also affect that status.
In order to be able to provide an opinion on the residency status of an individual, the CRA must conduct a detailed review of all facts and circumstances specific to the individual's situation, which will generally have been brought to its attention by Form NR73. These include residency links with Canada and the duration, purpose, intent and continuity of Canadian and international travel. In addition, the residency status of an individual may vary over time depending on the particular facts and circumstances at the time of the determination.
It is possible that an individual may not have broken all residential ties with Canada, even though the individual is physically absent for a considerable period of time (that is, for a period of several months or years). In that context, the individual could be considered to be a Canadian resident for tax purposes, particularly if the individual did not intend to terminate the individual’s ties of residence with Canada.
In view of the above, the CRA does not envisage the creation of a simplified residency status determination procedure, even for an individual who has been physically absent from Canada for several years. Recall that an individual can electronically submit a completed NR73 Form through the CRA's My Account online service. An individual who does not use My Account must provide the required information on Form NR73 through the usual channels.
It should be noted that the CRA is constantly seeking to improve and simplify the services it offers. Its processes are therefore likely to change in the future, along with technology and its policies, which will make it easier for taxpayers. We invite you to visit the CRA website for any developments on that subject.
Jean-Bernard Dion
(514) 283-1718
October 11, 2019
2019-081297
Response prepared in collaboration with:
Jeffrey Haynes, T1 Call Centre and Benefits Support Division
Assessment, Benefit and Service Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Canada Revenue Agency, Form NR73 Determination of Residency Status (leaving Canada)