Tax payable by persons resident in Canada

Legislative history

The residence basis of Canadian income tax is as old as the tax itself. Section 2 in its present form dates from the 1972 reform, its structure from the 1948 Act, and its central phrase, “every person resident in Canada”, from the Senate’s reading of the 1917 bill. The Justice Laws consolidation lists no amendment after 1985, and its single point-in-time version (31 August 2004 to the present) is identical to the current text. What follows is drawn from what was digitally available on Justice Laws, on publications.gc.ca, and in the Library of Parliament’s historical bills, debates, and journals; where only a bill as introduced was available, and not the enacted statute, that is said. Once the printed statute volumes for 1917, 1948, 1952, and 1972 can be examined, this history will be updated.

• The Income War Tax Act, 1917. Bill 117, introduced by Sir Thomas White on 26 July 1917, charged in clause 4(1) “the income during the preceding year of every individual residing or ordinarily resident in Canada or carrying on any business in Canada”, and clause 3(3) measured the income of persons “residing or having their head office or principal place of business outside of Canada but carrying on business in Canada” by the net profit of the Canadian business. By the time the bill reached the Senate the word “individual” had become “person”: on 3 September 1917 Senator Ross read the section as taxing “every person residing or ordinarily resident in Canada or carrying on any business in Canada”. The Senate’s five amendments did not touch the section, and royal assent was given at the prorogation sitting of 20 September 1917. The chapter number (usually given as S.C. 1917, c. 28) and the enacted text were not read on an official site.
• The Income Tax Act, S.C. 1948, c. 52, s. 2. Bill 338 as introduced set out the structure still in use. Subsection 2(1): “An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.” Subsection 2(2) charged a person not taxable under subsection (1) who “was employed in Canada at any time in the year” or “carried on business in Canada at any time in the year” on “his taxable income earned in Canada for the year determined in accordance with Division D”. Subsection 2(3) defined taxable income as income “minus the deductions permitted by Division C”. There was no disposition head. The Income Tax Application Rules, s. 12, confirm the citation. The enacted text was not read.
• R.S.C. 1952, c. 148, s. 2. The 1948 Act became chapter 148 of the 1952 revision (explanatory note to R.S.C. 1985, c. 1 (5th Supp.)). The Supreme Court in Tara Exploration applied “s. 2(2)” of the 1952 Act as the charge on a non-resident carrying on business in Canada (p. 1059). No official copy of the 1952 text was found online.
• S.C. 1970-71-72, c. 63, s. 1 “2” (Bill C-259, first reading 30 June 1971). The tax reform repealed and replaced Part I. New subsection 2(3) added the third head, “disposed of a taxable Canadian property”, and the words “at any time in the year or a previous year”; taxable income moved to subsection 2(2). Section 9 of the Income Tax Application Rules applies section 1 of chapter 63 “to the 1972 and subsequent taxation years”. The 1985 Revised Statutes record chapter 63 as having “repeal[ed] and replac[ed] the Act almost in its entirety”.
• S.C. 1984, c. 1, s. 1 (Bill C-2, royal assent 19 January 1984). Subsection 2(2) was re-enacted to read “plus the addition and minus the deductions permitted by Division C”, for the 1983 and subsequent taxation years. The Department of Finance explained the change as consequential on forward averaging: “The addition to taxable income is provided in subsection 110.4(2) of the Act and enables a taxpayer to obtain a refund of taxes previously paid under forward averaging” (explanatory notes of November 1983, clause 1).
• S.C. 1985, c. 45, s. 1 (Bill C-72, royal assent 29 October 1985). Subsection 2(2) was re-enacted with “the additions”, for the 1985 and subsequent taxation years, consequential on new section 110.5, which “permits a corporation to add an amount in computing its taxable income in order to increase the amount of its foreign tax credit” (technical notes of 9 September 1985, clause 1).
• R.S.C. 1985, c. 1 (5th Supp.), s. 2 (cut-off 30 November 1991). The revision made drafting changes only: “as hereinafter required upon” became “as required by this Act, on”, and “his income” and “his taxable income earned in Canada” became “the taxpayer’s income” and “the person’s taxable income earned in Canada”. The source note printed under the section, and still shown on Justice Laws, reads “1970-71-72, c. 63, s. 1 “2”; 1984, c. 1, s.1; 1985, c. 45, s. 1”, the revision’s convention being to cite the 1972 numbering and later amendments rather than the revision itself.
• Since 1985. No amending Act is listed. The printed 1985 text of subsection 2(3) reads “not taxable under subsection (1)”, and the French consolidation still reads “en vertu du paragraphe (1)”, whereas the English consolidation reads “under subsection 2(1)”; the source of that editorial change was not identified and it has no substantive effect.

Interpretation and application →

Interpretation and application

Section 2 does three things. Subsection 2(1) fixes who is taxable under Part I on worldwide income, by reference to residence. Subsection 2(2) names the base, taxable income, and points to Division C for the adjustments between income and taxable income. Subsection 2(3) extends the charge to non-residents, but only on income from three Canadian connections and only on the base Division D constructs for them. Everything else in Part I, from the source rules in section 3 to the rates in section 117, operates on one of these two bases. The Act does not define “resident”; it defines “non-resident” as “not resident in Canada” (subsection 248(1)), extends residence to the ordinarily resident (subsection 250(3)), deems residence in listed cases (subsections 250(1) and (4)), and deems non-residence where a treaty awards residence to the other State (subsection 250(5)).

The charge on residents (subsection 2(1))

The tax is imposed on “every person resident in Canada at any time in the year”. “Person” is extended by subsection 248(1) to include any corporation, any entity exempt under subsection 149(1) on all or part of its taxable income, and the heirs, executors, liquidators of a succession, administrators, and other legal representatives of a person; the Interpretation Act, R.S.C. 1985, c. I-21, s. 35(1), likewise includes a corporation. A trust is taxed as a person in its own right: “s. 2(1) is the basic charging provision of the Act, and its reference to a ‘person’ must be read as a reference to the taxpayer whose taxable income is being subjected to income tax. This is the trust, not the trustee” (Fundy Settlement, para. 13). An individual is “a person other than a corporation” (subsection 248(1)).

Residence “at any time in the year” is enough to bring a person within the subsection for the whole year. The Tax Court has read the same words in subsection 118(6) consistently with subsection 2(1) as importing the common-law residence test, subject to the deeming rules, so that a person is resident either as a deemed resident or as a factual resident (Persaud, paras. 11, 15–21, and 24–26). The consequence for an individual who is resident for only part of the year is not taxation of worldwide income for the whole year: section 114 computes taxable income for the resident part and, for the non-resident part, only the amounts described in paragraphs 115(1)(a) to (c) (Grant, para. 24; Zhu, para. 19, describing section 114 as applying “the relevant resident and non-resident provisions of the Act to the particular parts of the year that correspond with residence”). A taxpayer who ceased to be resident on 30 December was taxed for the year under section 114, and interest paid on 31 December was not deductible because paragraph 114(c) reaches only Division C deductions (Grant, paras. 7, 16, 35–40, and 49–50). Immigration and emigration are dealt with by section 128.1, which deems a disposition of most property at fair market value on ceasing to be resident (subsection 128.1(4)) and a step-up on becoming resident (subsection 128.1(1)); becoming resident in Canada triggers subsection 128.1(1) whether or not the taxpayer ceased to be resident elsewhere (Backx, paras. 18–20).

Residence is decided year by year. “[E]ach year in issue must be looked at individually for the purpose of determining whether the Appellant was ordinarily resident in Canada” (Johnson, para. 54; Hauser, paras. 20–21, where the mode-of-life evidence nonetheless invited a global view). Residence may cease part-way through a period, as where a family’s stay abroad became more than transitory once a doctoral commitment was made (Snow, paras. 20–24 and 30).

Residence of individuals

The Act supplies no test. The courts apply Thomson v. Minister of National Revenue, [1946] S.C.R. 209, which the Federal Court of Appeal calls “the leading Canadian authority” (Allchin, para. 2). Two passages carry the law. Estey J. held that “one is ‘ordinarily resident’ in the place where in the settled routine of his life he regularly, normally or customarily lives” (quoted in Johnson, para. 40, and in Folio S5-F1-C1, para. 1.6); Rand J. described the concept as “the spatial bounds within which he spends his life”, applied to a person’s “ordered or customary living” (applied in Nedelcu (TCC), para. 16). The Federal Court of Appeal’s modern statement is that “a person is resident in the country where he or she, in the settled routine of life, regularly, normally or customarily lives, as opposed to the place where the person unusually, casually or intermittently stays” (Laurin, para. 2). The Supreme Court’s reasons in Thomson and in Beament v. M.N.R., 52 D.T.C. 1183, could not be read on the Court’s own site, whose collection begins in 1970; they are cited here as quoted in the verified decisions.

Four propositions follow from the cases. First, residence is a question of fact, or at most of mixed fact and law: “The decision as to the place or places in which a person resides in a given year is one of fact” (Hauser, para. 18, citing Beament at 1186); “The legal test of residence has a substantial factual component” and the trial judge’s finding attracts deference (Laurin, paras. 3–4; McFadyen (FCA), para. 1). Second, a person may reside in more than one place at once: “It has long been established that a person can reside in more than one place at once” (Hauser, para. 14, citing Thomson at 213). The question is therefore not which country has the stronger claim but whether, despite residence elsewhere, the person continued to reside in Canada (Hauser, para. 14; Biya, paras. 50–53, where Ethiopian residence did not need to be decided). Third, no single factor and no bright line governs. The Tax Court cannot “adopt either a presumptive or a bright line test based on one’s period of absence from Canada”; time abroad is one fact among all others (Perlman, para. 29). Change of residence “depends on facts external to [the individual’s] will or desires”, and length of stay, “although an element, is not always conclusive” (Schujahn v. M.N.R., 62 D.T.C. 1225 (Ex. Ct.) at 1227, quoted in Revah, para. 19); “no one or any group of two or three items will in themselves establish that the individual is resident in Canada” (Lee v. M.N.R., 90 D.T.C. 1014, quoted in Guo, para. 15). Fourth, the factors are those listed by Mahoney J. in The Queen v. Reeder, 75 D.T.C. 5160 (F.C.T.D.): past and present habits of life; regularity and length of visits in the jurisdiction asserting residence; ties within that jurisdiction; ties elsewhere; and the permanence or otherwise of purposes of stay abroad (as set out in Perlman, para. 22; Dysert, para. 29; Biya, para. 41).

The CRA’s account of the factors is in Folio S5-F1-C1. The most important consideration for an individual leaving Canada is whether residential ties are maintained (para. 1.10). A dwelling place available for occupation, a spouse or common-law partner remaining in Canada, and dependants are “almost always” significant ties (paras. 1.11–1.13); personal property, social and economic ties, immigration status, provincial health coverage, a driver’s licence, a registered vehicle, a seasonal dwelling, a passport, and professional memberships are secondary ties of limited weight except in combination (paras. 1.14–1.15). A departing individual generally becomes non-resident on the latest of the dates on which the individual leaves, the spouse or dependants leave, and the individual becomes resident in the new country (para. 1.22); an arriving individual generally becomes resident on the date of entry once ties are established (para. 1.28). These are the administrator’s views and describe the case law; they are not themselves law.

The decided cases illustrate the pattern. Temporary absences with a home kept available and a family left behind leave residence intact: a four-year contract in Egypt with a home maintained through the spouse (Gaudreau, paras. 1–3); a three-year posting to Japan accompanying a spouse (McFadyen (TCC), paras. 103–104, affirmed 2002 FCA 496, para. 1); a 36-month contract in the United Arab Emirates without severing ties (Johnson, paras. 41 and 49–55); a post-doctoral fellowship abroad while husband, child, and mother stayed in the Saskatchewan home (Guo, paras. 19–30, noting at para. 18 that actions weigh more than intentions); an Air Canada pilot with a conceded Bahamian residence who still lived in Canada in the settled routine of his life (Hauser, paras. 14 and 18–21); eleven years in Ethiopia with a rental property, family, accounts, and a place to stay in Toronto (Biya, paras. 38 and 50–53, observing that “ending one’s residency in Canada is no simple thing”); and a rabbinical student abroad since 1994 who kept Canadian ties and intended to return (Perlman, paras. 32 and 39). Residence ends when the ties are cut: a taxpayer living in the United States who visited family once or twice a year, kept no Canadian home, and had cut “the great majority of his ties”, errors in the address on his returns notwithstanding (Revah, paras. 23–29); a mother living with her family in Romania since 1993 who visited Canada for about fifty days over three years (Nedelcu (TCC), paras. 14–20, affirmed 2010 FCA 156, paras. 12 and 19–20, which adds at para. 21 that earlier CRA letters calling her a factual resident did not bind the Minister). A non-resident may own Canadian real estate, keep Canadian bank accounts, and travel here on business without becoming resident; the Act deals with such persons through section 116 and Part XIII (Mahmood, paras. 48–62). And a Canadian citizen who had lived in Korea since 1984 and spent four and a half months in Canada was not resident (Yoon, paras. 1–11).

Sojourners and the other deemed residents (subsection 250(1))

An individual who is not factually resident is nonetheless “deemed to have been resident in Canada throughout a taxation year” if the individual “sojourned in Canada in the year for a period of, or periods the total of which is, 183 days or more” (paragraph 250(1)(a)), or falls within the other paragraphs: members of the Canadian Forces, ambassadors and officers or servants of Canada or a province who were resident immediately before appointment or received representation allowances, persons serving abroad under a prescribed international development assistance program, overseas Canadian Forces school staff who file as residents, their dependent children with limited income, and persons exempt from foreign tax under a treaty because related to a Canadian resident (paragraphs (b) to (g)). Factual residence and deemed residence by sojourning are “alternative and inconsistent” arguments (Dysert, note 2). In Dysert, American engineers working in Edmonton on a renewable contract were not factually or ordinarily resident but were sojourners deemed resident for the years in which they were present 183 days or more (paras. 33 and 36–45). The CRA regards a sojourn as “a temporary stay in the sense of establishing a temporary residence”, assessed separately for each stay (Folio S5-F1-C1, para. 1.33), and deemed residents pay federal tax and a federal surtax rather than provincial tax (CRA, “Deemed residents of Canada”). The charge on a deemed resident is the charge under subsection 2(1).

Dual residence, tax treaties, and deemed non-residence (subsection 250(5))

A person may be resident in Canada under the Act and resident in another country under its law. Where a tax treaty is in force, its residence article determines a single treaty residence, and subsection 250(5) then deems the person “not to be resident in Canada” if the person “is, under a tax treaty with another country, resident in the other country and not resident in Canada”, notwithstanding any other provision of the Act other than paragraph 126(1.1)(a). The rule applied only to corporations until 1998; the amendment enacted by S.C. 1999, c. 22, s. 82, extended it to all persons after 24 February 1998, with a transitional rule for individuals already treaty-resident elsewhere on that date, and the Department of Finance noted that an “indirect effect of subsection 250(5) may be that a taxpayer ceases to be resident in Canada”, so that subsection 128.1(4) applies (explanatory notes of October 1998, pp. 296–298). The person then falls out of subsection 2(1) and into subsection 2(3) and Part XIII.

The treaty analysis has two stages, and omitting the second is an error of law. In Allchin, a green-card holder found resident in Canada under Thomson might also have been resident in the United States under Article IV(1) of the Canada–United States Convention “without having severed ties to Canada”, and “[t]he failure to conduct the analysis provided by the Treaty is clearly a legal error” (paras. 14–15). The first stage asks whether the person is “liable to tax” in the other State by reason of domicile, residence, place of management, place of incorporation, or a similar criterion. That means “being subject to as comprehensive a tax liability as is imposed by a state”, which in Canada and the United States “is taxation on world-wide income”; liability on source income alone does not suffice (Crown Forest, paras. 40 and 62). Liability to tax is “better understood as being ‘liable to be liable to tax’, meaning that taxes are a possibility, regardless of whether the person actually pays any” (Alta Energy, para. 54), and the residence article leaves the core definition to domestic law (paras. 55–56). A taxpayer who could not show that Japan subjected him to as comprehensive a liability as it imposes was not a resident of Japan under the convention (McFadyen (TCC), para. 151). Where the other country’s law is not proved, the Tax Court may apply the lex fori to decide foreign residence, residence being “a question of general law” (Yoon, paras. 12–17).

The second stage applies the tie-breaker. Under Article IV(2) of the Canada–United States Convention, and the corresponding Article 4(2) of Canada’s other treaties, an individual resident in both States is deemed resident where the individual has a permanent home; if in both or neither, where personal and economic relations are closer (the centre of vital interests); failing that, where the individual has an habitual abode; failing that, by citizenship or nationality; failing that, by mutual agreement. “Habitual abode” is a question of law; its application is one of mixed fact and law; it “involves notions of frequency, duration and regularity of stays of a quality which are more than transient” (Lingle, paras. 5–6). The centre of vital interests turns on the closeness, not the number, of ties: “closer does not mean more numerous” (Dysert, para. 72). In Dysert the American engineers, deemed resident as sojourners, had their centre of vital interests in the United States, so subsection 250(5) deemed them not resident and Part I did not apply (paras. 72–78); in Gaudreau the Egyptian tie-breaker was applied without error (paras. 5–7); in Tanga, treaty residence in Cameroon, if established, would have precluded Canadian residence under subsection 250(5) (para. 74). The Tax Court has jurisdiction to decide treaty residence in an appeal (McFadyen (FCA), para. 2), although the trial judge in that case doubted that the Court could itself apply a tie-breaker the convention left to the competent authorities (McFadyen (TCC), paras. 153–154, obiter). The CRA’s account is at Folio S5-F1-C1, paras. 1.37–1.51, which adopts Crown Forest on liability to tax (para. 1.41), treats a Canadian home not leased to a third party on arm’s length terms as a permanent home (para. 1.49), and describes the centre of vital interests test by reference to the same ties as factual residence (para. 1.50). Undefined treaty terms take their meaning under the Act as amended from time to time (Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, s. 3).

Residence of corporations

A corporation incorporated in Canada after 26 April 1965 is deemed resident in Canada throughout the year, as is an earlier corporation that was resident under the common law or carried on business in Canada in any year after that date (subsection 250(4)); a continued corporation is deemed incorporated in the jurisdiction of continuance (subsection 250(5.1)); and certain international shipping corporations are deemed resident in their home country (subsection 250(6)). Before the 1965 rule, an Ontario company managed from Ireland was accepted as non-resident and taxed only under the non-resident charge (Tara Exploration, p. 1058).

Outside the deeming rules, “for income tax purposes, the residence of a corporation is determined primarily by finding the location of the corporation’s central management and control, which is a question of fact” (St. Michael Trust, para. 55). The source is De Beers Consolidated Mines, Ltd. v. Howe, [1906] A.C. 455 (H.L.) at 458: “the real business is carried on where the central management and control actually abides” (quoted in Fundy Settlement, para. 8). Central management and control is usually exercised where the board of directors acts, but may be found where a controlling shareholder in fact makes the decisions (Fundy Settlement, para. 9, citing Unit Construction Co. v. Bullock, [1960] A.C. 351 (H.L.); St. Michael Trust, para. 56). “If the corporation is not deemed a resident under 250(4) of the Act, it may still be a resident of Canada under the common law” (Backx, para. 7). In Backx, a Dutch B.V. whose central management and control abided in Canada in 2009 was resident here, the Minister was not estopped by having accepted Dutch residence in earlier years, and the Tax Court erred in holding that the Canada–Netherlands convention had no bearing once Canadian residence was found, because the corporate tie-breaker had to be considered: “if the Convention provides an exception or relief to the appellant, it would take precedence over the Act” (paras. 8, 11–15, and 25–29). The location of the “controlling mind and management” is a question of mixed fact and law, not a fact the Minister may plead as an assumption without the facts beneath it; where that conclusion went to the heart of the appeal and particulars were refused, the assumption was struck (Adboss, paras. 15–17 and 21–24, under the Excise Tax Act but applying Fundy Settlement and Backx).

The corporate tie-breakers differ from the individual ones. Article IV(3) of the Canada–United States Convention, as replaced by the 2007 Protocol, deems a dual-resident company resident only in the State under whose laws it was created if it was not created under the laws of the other; in any other case the competent authorities are to endeavour to agree, failing which the company is not a resident of either State for the purpose of claiming benefits (Sched. VI to the Canada–United States Tax Convention Act, 1984, Art. 2(1), effective for continuations after 17 September 2000). Most of Canada’s other treaties, including Article 4(3) of the Canada–United Kingdom Convention, leave a dual-resident person other than an individual to mutual agreement. Article 4(1) of the Multilateral Instrument, which has the force of law under the Multilateral Instrument in Respect of Tax Conventions Act, S.C. 2019, c. 12, s. 3, directs the competent authorities to determine residence “having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors”, and denies treaty relief absent agreement; Canada made no reservation on Article 4 and notified the United Kingdom convention, among others, as containing a provision Article 4(1) replaces, while the Canada–United States Convention does not appear in Canada’s list of covered agreements. Whether the tie-breaker has actually been modified for a given treaty depends on the other party’s position, which was not checked here. Once a treaty tie-breaker awards residence to the other State, subsection 250(5) applies to the corporation as it does to an individual; the CRA notes that a departing corporation faces the 25% tax under section 219.1, subject to treaty (CRA, “Residency of a corporation”).

Residence of trusts

A trust resides where its central management and control actually takes place. The Supreme Court held that “residence of a trust should be determined by the principle that a trust resides for the purposes of the Act where ‘its real business is carried on’ … which is where the central management and control of the trust actually takes place” (Fundy Settlement, para. 15), and that residence is generally a question of fact (para. 7). On the Tax Court’s findings, the Canadian-resident main beneficiaries, not the Barbados trustee, exercised central management and control, so the trusts were resident in Canada (paras. 14–15). The Court declined to reach section 94 or the general anti-avoidance rule (paras. 18–19). The Federal Court of Appeal had rejected “a rigid legal test that necessarily ties the residence of a trust to the residence of the trustee regardless of the facts” (St. Michael Trust, para. 62), distinguished between beneficiaries who make recommendations to a trustee who retains control and beneficiaries who in fact exercise the trustee’s powers (para. 68), and disagreed with Thibodeau Family Trust, 78 D.T.C. 6376 (F.C.T.D.), to the extent it rejected the test (paras. 58–61). The Tax Court had reasoned that “[t]he function of each is, at a basic level, the management of property”, so that the corporate test applies to trusts “with such modifications as are appropriate” (Garron, paras. 159 and 162). A trust that is not factually resident may be deemed resident for stated purposes by section 94, and a trust deemed resident by subsection 94(3) is deemed a resident of Canada and not of the other contracting State for treaty purposes (Income Tax Conventions Interpretation Act, s. 4.3). The CRA’s statement of the law is Folio S6-F1-C1, paras. 1.2 and 1.8–1.10.

Taxable income (subsection 2(2))

Taxable income is “the taxpayer’s income for the year plus the additions and minus the deductions permitted by Division C”. Income is computed under section 3, whose paragraph (a) totals the taxpayer’s income “from a source inside or outside Canada”, which is why residents are taxed on worldwide income. Subsection 248(1) adopts the subsection 2(2) meaning “except that in no case may a taxpayer’s taxable income be less than nil”. Division C contains the deductions and the additions, the latter introduced in 1983 (subsection 110.4(2), forward averaging, since repealed) and 1985 (section 110.5, the foreign tax credit addition), which are why subsection 2(2) speaks of additions. The rates in subsection 117(2) apply to an individual’s “taxable income or taxable income earned in Canada”, the “amount taxable”, and section 117(1) computes Part I tax without reference to the minimum tax in Division E.1 save as stated. For a part-year resident, section 114 displaces subsection 2(2) (“Notwithstanding subsection 2(2)”) and computes taxable income for the year from the two parts (Grant, paras. 24 and 26; Zhu, paras. 18–22, where losses realized in the non-resident part were deductible only if they met paragraph 115(1)(c)).

The charge on non-residents (subsection 2(3))

A person “who is not taxable under subsection 2(1) for a taxation year” is charged if the person “was employed in Canada”, “carried on a business in Canada”, or “disposed of a taxable Canadian property”, “at any time in the year or a previous year”, and the base is “taxable income earned in Canada for the year determined in accordance with Division D”. Subsection 115(1) opens by defining that base for “a person who at no time in the year is resident in Canada” as what the person’s income under section 3 would be if certain assumptions applied, and subsection 248(1) again forbids a negative amount. The words “or a previous year” bring within the charge amounts received in a later year from a connection that has ended, which Division D then measures. Part XIII tax on passive income of non-residents is a separate charge, not a charge under section 2 (see Mahmood, para. 62; Crown Forest, which concerned Part XIII withholding at 25%, para. 69).

Employed in Canada. “Employed” means “performing the duties of an office or employment” (subsection 248(1)), and subparagraph 115(1)(a)(i) includes income from duties performed in Canada. A non-resident airline pilot is taxable on the remuneration attributable to duties performed in Canada, including the Canadian-airspace portion of international flights; “[n]either the Act nor the Convention provides rules of apportionment that apply to employees who perform only part of their duties in Canada. In this case the taxable portion may be computed on any reasonable basis”, and it is not enough for the taxpayer to show that the Minister’s method is inaccurate (Sutcliffe, paras. 56, 60, 63, and 68). The most reasonable method reflects the pay structure in the employment contract, that is, flying time, and excludes layovers (Price (TCC), para. 33; Price (FCA), paras. 22–25). Disability benefits under paragraph 6(1)(f) are income from duties performed in Canada (Price (FCA), paras. 29–35), and section 7 stock option benefits enter a non-resident’s employment income under subparagraph 115(1)(a)(i) (Hurd v. The Queen, [1982] 1 F.C. 554 (C.A.), as applied in Price (FCA), para. 32). The Income Tax Regulations relieve an employer from withholding on an employee “who was neither employed nor resident in Canada at the time of payment” except for remuneration reasonably attributable to duties performed in Canada and certain deferred remuneration (Reg. 104(2)), and deny personal credits in computing source deductions for a non-resident employee (Reg. 102(1)(d)).

Carried on a business in Canada. The common-law inquiry is where the operations from which the profits arise take place, and it is supplemented by section 253, which deems a non-resident who produces or manufactures in Canada, who “solicits orders or offers anything for sale in Canada through an agent or servant”, or who disposes of certain Canadian resource, timber, or real property to have carried on business in Canada in the year. “Parliament’s intent in creating the presumption was to subject non-resident persons to Canadian tax provided they carry out a minimum amount of commercial activity within Canada’s borders” (Maya Forestales (TCC), para. 34); the words “in Canada” in paragraph 253(b) qualify the soliciting or offering, not its object, so that a Costa Rican company offering Costa Rican plantation lots through a Quebec mandatary was taxable under paragraph 2(3)(b) and subparagraph 115(1)(a)(ii) (paras. 32–38), and the provision displaces the place-of-contract rule of Grainger v. Gough (para. 43). Advertising in Canada that merely invited Vancouver residents to visit a development in Washington State was not soliciting or offering for sale in Canada (Sudden Valley, Inc. v. The Queen, [1976] 2 F.C. 462 (T.D.), affirmed [1977] 1 F.C. 617 (C.A.), as summarized in Maya Forestales (TCC)). A non-resident that carries on business in Canada must reasonably allocate its income to Canada under paragraph 4(1)(b), and one that files nothing cannot complain of an estimated assessment (Maya Forestales (TCC), paras. 32 and 44; (FCA), paras. 7–10). The charge is then subject to treaty: “[p]ursuant to paragraph 2(3)(b) of the Income Tax Act, a non-resident is taxed on business profits earned in Canada, if the non-resident carries on business in Canada”, but the business profits article confines Canadian tax to profits attributable to a permanent establishment, so that a United States insurer selling through Canadian agents carried on “significant business in Canada without establishing a permanent establishment” and paid no Canadian tax on its profits (Knights of Columbus, paras. 48 and 84–85; American Income Life, paras. 33 and 89). The Supreme Court reached the same result under the Canada–Ireland treaty for a Toronto office that was “little more than an office maintained to enable the respondent to comply with the requirements of the Corporations Act” (Tara Exploration, pp. 1059–1061). Payments to a non-resident for services rendered in Canada are subject to 15% withholding (Reg. 105(1)).

Disposed of a taxable Canadian property. The definition in subsection 248(1) lists real or immovable property in Canada, property used in a business carried on in Canada, designated insurance property, unlisted shares and partnership and trust interests deriving more than 50% of their value from Canadian real property, resource property, or timber property at any time in the preceding 60 months, listed shares and mutual fund units meeting a 25% ownership test and the same value test, and options and interests in any of them; and “for the purposes of section 2” and the other provisions named, it also includes Canadian resource property, timber resource property, an income interest in a trust resident in Canada, a right to a share of income under a paragraph 96(1.1)(a) agreement, and a life insurance policy in Canada (paragraphs (g) to (k)). A disposition brings the non-resident within paragraph 2(3)(c) for the year, and paragraph 115(1)(b) confines the taxable capital gains and allowable capital losses counted to those “from dispositions, other than dispositions deemed under subsection 218.3(2), of taxable Canadian properties (other than treaty-protected properties)”. Section 116 provides the notice, certificate, and purchaser-withholding machinery that secures the tax, and the departure-tax deemed disposition in subsection 128.1(4) excludes, for an individual, real or immovable property situated in Canada and property of a business carried on in Canada (subparagraphs 128.1(4)(b)(i) and (ii)).

← Legislative historyPolicy purpose and commentary →

Policy purpose and commentary

Residence has been the principal basis of Canadian income tax from the beginning, and the Royal Commission on Taxation recommended in 1966 that it remain so, “largely because residence seems to imply a closer association than citizenship between the taxpayer and the use of services provided by a taxing jurisdiction”, while acknowledging that “[t]he Income Tax Act neither fully defines the term ‘resident’ nor indeed gives very much guidance as to its meaning. It is a product of jurisprudence” (Report, vol. 4, pp. 542–543; see also p. 502, describing residence as “the basic Canadian test of liability for income tax” and the resident as taxable “on total world income”). The Commission also recorded that the 183-day rule was already the only statutory guidance for individuals and that the corporate incorporation rule had recently been added (pp. 502 and 543). The Federal Court of Appeal likewise treats residence as the principal basis of taxation under the Act (St. Michael Trust, para. 52).

The two halves of section 2 reflect the two international bases of jurisdiction. Subsection 2(1) is the residence basis, and its reach is worldwide because section 3 counts income from sources inside or outside Canada. Subsection 2(3) is the source basis, confined to the three connections Parliament has chosen and to the base Division D constructs; section 253 extends the business head “to non-resident persons based on certain activities that they carry out within Canada’s borders” (Maya Forestales (TCC), para. 36). The Supreme Court has held that the object of the residence article of a treaty is not to reserve treaty benefits to residents with “sufficient substantive economic connections” to their State (Alta Energy, para. 67), and that both place-of-incorporation and real-seat rules for corporate residence are internationally accepted (paras. 60–62), which explains why Canada combines the incorporation rule in subsection 250(4) with the common-law central management and control test.

The Department of Finance has explained the purpose of subsection 250(5) as ensuring that a person’s “tax status in Canada reflects its status under the treaty”, so that a person who is treaty-resident elsewhere is a non-resident “for all purposes of the Act” (explanatory notes of October 1998, pp. 296–298). The extension of the corporate test to trusts rested on function: “The function of each is, at a basic level, the management of property” (Garron, para. 159), and the Supreme Court adopted the test (Fundy Settlement, para. 15) after the Federal Court of Appeal had rejected a rule tying trust residence to the trustee as “not sound in principle” (St. Michael Trust, para. 62).

Selected commentary. The Canadian Tax Foundation has published “A Tax Policy Perspective on Corporate Residence” (2003) 51:4 Canadian Tax Journal 1559; “Residence-Based Taxation and FAPI” (2005) 53:1 Canadian Tax Journal 179; “What Makes a Bare Trust Resident in Canada?” Canadian Tax Focus (2024); and “Corporate Emigration Refresher” Canadian Tax Focus (2025); the Commission cited Sherbaniuk, Hutcheon and Brissenden, “Liability for Tax – Residence, Domicile or Citizenship?” 1963 Conference Report (Canadian Tax Foundation) 315. The Foundation’s site refused automated access, so authors and titles are recorded from the catalogue entries only and nothing is taken from them.

← Interpretation and applicationRelevant case law →

Relevant case law

• Fundy Settlement v. Canada, 2012 SCC 14, [2012] 1 S.C.R. 520. A trust resides where its central management and control actually takes place, as a corporation does; the “person” in subsection 2(1) is the trust, not the trustee (paras. 7–9 and 13–15); section 94 and GAAR not reached (paras. 18–19).
• Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49. “Liable to tax” means liable to be liable to tax on worldwide income; the residence article leaves the definition of residence to domestic law; place-of-incorporation and real-seat rules are both accepted (paras. 54–56, 60–62, and 67).
• Crown Forest Industries Ltd. v. Canada, [1995] 2 S.C.R. 802. Treaty residence requires “as comprehensive a tax liability as is imposed by a state”, meaning taxation on worldwide income; source liability is not enough (paras. 40, 57, and 62); treaties are interpreted liberally with resort to extrinsic material (paras. 43 and 55).
• Minister of National Revenue v. Tara Exploration and Development Co. Ltd., [1974] S.C.R. 1057. Ontario company managed from Ireland was non-resident; its trading profit fell within the non-resident charge (then s. 2(2) of the 1952 Act) but was treaty-exempt because not attributable to a permanent establishment (pp. 1058–1061).
• Thomson v. Minister of National Revenue, [1946] S.C.R. 209. The leading authority on the residence of individuals: “ordinarily resident” means the place where, in the settled routine of life, a person regularly, normally, or customarily lives; a person may reside in more than one place (as quoted in Johnson, para. 40; Hauser, paras. 14–15; Allchin, para. 2). Not read on the Court’s site.
• Beament v. M.N.R., 52 D.T.C. 1183 (S.C.C.). Residence in a given year is a question of fact (at 1186, as cited in Hauser, para. 18). Not read on the Court’s site.
• Landbouwbedrijf Backx B.V. v. Canada, 2019 FCA 310. A corporation not deemed resident may be resident at common law; central management and control in Canada made a Dutch B.V. resident; becoming resident triggers subsection 128.1(1) without ceasing residence elsewhere; the treaty tie-breaker must be considered (paras. 7–8, 15, 18–20, and 25–29).
• Canada v. Adboss, Ltd., 2023 FCA 201. The location of a corporation’s controlling mind and management is a question of mixed fact and law; an assumption pleading it without underlying facts, particulars having been refused, was properly struck (paras. 15–17 and 21–24).
• St. Michael Trust Corp. v. Canada, 2010 FCA 309. Central management and control applies to trusts; no rule ties trust residence to the trustee; corporate residence is primarily central management and control, a question of fact (paras. 51–68, especially 55–56 and 62); residence as the principal basis of taxation (para. 52).
• Canada v. Laurin, 2008 FCA 58. Residence is where a person, in the settled routine of life, regularly, normally, or customarily lives; the test has “a substantial factual component” and the trial finding attracts deference (paras. 2–4).
• Hauser v. Canada, 2006 FCA 216. A person can reside in more than one place; the question is whether, despite residence abroad, the person continued to reside in Canada; residence is a question of fact; year-by-year analysis (paras. 14, 18, and 20–21).
• Gaudreau v. Canada, 2005 FCA 388. Intention to return, a home maintained through a spouse, and other ties kept a taxpayer on a four-year foreign contract resident; the centre-of-vital-interests tie-breaker was applied without error (paras. 1–7).
• Allchin v. Canada, 2004 FCA 206. Failure to consider dual residence and to apply the treaty tie-breaker is an error of law; green-card status is a criterion of a similar nature under Article IV(1) (paras. 12–17).
• McFadyen v. Canada, 2002 FCA 496. Ordinary residence is a conclusion of mixed fact and law reviewed for palpable and overriding error; the Tax Court may determine treaty residence (paras. 1–2). Below: McFadyen v. The Queen (T.C.C., 11 September 2000, docket 97-2037-IT-G), 2000 D.T.C. 2473: ties during a three-year posting to Japan were significant; Japan’s tax liability not shown to be comprehensive (paras. 97–106 and 151–155).
• Lingle v. Canada, 2010 FCA 152. “Habitual abode” involves frequency, duration, and regularity of stays of more than transient quality; its meaning is a question of law and its application one of mixed fact and law (paras. 3–6).
• Nedelcu v. Canada, 2010 FCA 156, affirming 2008 TCC 417. Mother living in Romania with brief annual visits was not resident; the Minister is not bound by earlier views on residence (paras. 12 and 19–21; TCC paras. 14–20).
• Price v. Canada, 2012 FCA 332, affirming in substance 2011 TCC 449. A non-resident pilot’s remuneration is allocated to duties performed in Canada by flying time, excluding layovers; disability benefits are income from duties performed in Canada; section 7 applies under subparagraph 115(1)(a)(i) (FCA paras. 22–25 and 29–35; TCC paras. 25–33 and 50–56).
• Maya Forestales S.A. v. Canada, 2006 FCA 35, affirming 2005 TCC 66. Section 253(b) deems a non-resident soliciting or offering anything for sale in Canada through an agent to carry on business in Canada, whatever the object; income must be reasonably allocated, and a taxpayer that files nothing cannot complain of an estimate (TCC paras. 32–38 and 43–44; FCA paras. 7–10).
• Garron Family Trust v. The Queen, 2009 TCC 450. The corporate test applies to trusts with appropriate modifications; on the facts the beneficiaries, not the trustee, exercised central management and control (paras. 157–162 and 188–190).
• Elliott, Dysert and Pickett v. The Queen, 2013 TCC 57. Foreign engineers on a long Canadian contract were not factually resident but were deemed resident as sojourners; the treaty tie-breaker placed their centre of vital interests in the United States, so subsection 250(5) deemed them non-resident (note 2 and paras. 33, 36–45, and 72–78).
• Biya v. The Queen, 2020 TCC 113. Eleven years abroad did not end residence where a rental property, family, accounts, and a place to stay remained; “ending one’s residency in Canada is no simple thing” (paras. 34, 38, 40–41, and 50–53).
• Tanga v. The King, 2024 TCC 80. The burden generally lies on the appellant; treaty residence in Cameroon, if established, would engage subsection 250(5) (paras. 22, 39, 53, and 74).
• Persaud v. The King, 2024 TCC 42. “At any time in the year” imports the common-law residence test, subject to the deeming rules; a visitor hospitalized for eight weeks was not resident (paras. 11, 15–21, and 24–26).
• Perlman v. The Queen, 2010 TCC 658. No presumptive or bright-line test based on length of absence; the Reeder factors; where the Crown first raises non-residence in the appeal it bears the onus (paras. 2, 22, 29, 32, and 39).
• Snow v. The Queen, 2012 TCC 78. Residence ceased when a stay abroad ceased to be transitory; the taxpayer bears the usual burden where the Minister relied on residence at the determination stage (paras. 20–30).
• Mahmood v. The Queen, 2009 TCC 89. A foreign businessman who visited alone on business, owned a condominium occupied by his mother, and banked here was not resident; “[o]ne can be a non-resident of Canada and own real estate in Canada at the same time” (paras. 48–65).
• Johnson v. The Queen, 2007 TCC 288. Engineer on a 36-month contract abroad remained ordinarily resident; each year is examined individually; onus stays on the taxpayer where the Reply states the basis and pleads sufficient facts (paras. 38–41 and 49–55).
• Yoon v. The Queen, 2005 TCC 366. Canadian citizen living in Korea since 1984 was not resident; absent proof of foreign law the lex fori may be applied to decide foreign residence (paras. 1–17).
• Revah v. The Queen, 2004 TCC 312. Ties cut, no Canadian residence, and annual family visits meant non-residence; address errors on returns did not matter; Schujahn quoted (paras. 18–29).
• Guo v. The Queen, 2003 TCC 23. Researcher abroad whose family stayed in the Canadian home remained ordinarily resident; actions weigh more than intentions; Lee quoted (paras. 15, 18–30).
• Sutcliffe v. The Queen, 2005 TCC 812. Non-resident pilot taxable on duties performed in Canada including Canadian airspace on international flights; apportionment on any reasonable basis; the treaty crew exemption confined to aircraft operated by a resident of the pilot’s State (paras. 56–70 and 150–157).
• Knights of Columbus v. The Queen, 2008 TCC 307, and American Income Life Insurance Company v. The Queen, 2008 TCC 306. Non-resident insurers carried on business in Canada under paragraph 2(3)(b) but had no permanent establishment, so no Canadian tax on business profits (Knights paras. 48 and 84–85; AIL paras. 33 and 89).
• Grant v. The Queen, 2006 TCC 373, and Zhu v. The Queen, 2015 TCC 16. Section 114 governs the part-year resident; only Division C deductions under paragraph 114(c); non-resident-period losses only through section 115 (Grant paras. 24, 26, 35–40, and 49–50; Zhu paras. 18–22).
• Cited only as quoted in the decisions above: De Beers Consolidated Mines, Ltd. v. Howe, [1906] A.C. 455 (H.L.); Unit Construction Co. v. Bullock, [1960] A.C. 351 (H.L.); Schujahn v. M.N.R., 62 D.T.C. 1225 (Ex. Ct.); The Queen v. Reeder, 75 D.T.C. 5160, [1975] C.T.C. 256 (F.C.T.D.); Lee v. M.N.R., 90 D.T.C. 1014 (T.C.C.); Trustee of Thibodeau Family Trust v. Canada, 78 D.T.C. 6376 (F.C.T.D.); Sudden Valley, Inc. v. The Queen, [1976] 2 F.C. 462 (T.D.), affirmed [1977] 1 F.C. 617 (C.A.); Hurd v. The Queen, [1982] 1 F.C. 554 (C.A.); Hale v. The Queen, 92 D.T.C. 6473 (F.C.A.); The Queen v. Gurd’s Products Company Limited, 85 D.T.C. 5314 (F.C.A.).

← Policy purpose and commentaryCRA documents →

CRA documents

• Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status, effective 26 November 2015 (page modified 20 January 2026), which when first published on 28 March 2013 “replaced and cancelled Interpretation Bulletin IT–221R3”. Significant and secondary ties (paras. 1.10–1.15), ordinary residence (paras. 1.6–1.7), dates of departure and arrival (paras. 1.22–1.23 and 1.28), sojourners and the other deemed residents (paras. 1.30–1.36), subsection 250(5) and the tie-breakers (paras. 1.37–1.51), and Forms NR73 and NR74, advance rulings, and competent authority assistance (paras. 1.53–1.57). Its wording on the forms is permissive (“should consider completing”); nothing read says that filing is required.
• Income Tax Folio S6-F1-C1, Residence of a Trust or Estate, effective 25 November 2015. Fundy Settlement adopted (para. 1.2); section 94 deemed residence (para. 1.8); Income Tax Conventions Interpretation Act, s. 4.3 (para. 1.10).
• Residency of a corporation (page modified 26 May 2025): the CRA’s current statement on subsections 250(4), (5), (5.1), and (6), the central management and control test, treaty tie-breakers, and corporate emigration under section 219.1. There is no folio on corporate residence.
• IT-391R, Status of Corporations (14 September 1992, archived), paras. 15–16 on central management and control and subsection 250(4).
• Guide T4058, Non-Residents and Income Tax (Rev. 25), which describes the non-resident and deemed non-resident, the three heads of income in subsection 2(3), and which return package to use; CRA pages Determining your residency status, Deemed residents of Canada, Non-residents of Canada, Leaving Canada (emigrants), and Newcomers to Canada and the CRA (all modified January to September 2026). Pamphlet T4055 is archived (last edition 2023).
• Income Tax Audit Manual, chapter 15.0, International audit issues (issued 5 April 2022, modified 1 July 2026): section 15.2.0 “Income of a non-resident”, whose opening tracks subsection 2(3), with sections 15.2.4 to 15.2.12 on employment income, business carried on in Canada, the extended meaning in section 253, and dispositions of taxable Canadian property; section 15.4.0 “Residency” (15.4.1 overview, 15.4.2 corporations, 15.4.3 trusts, 15.4.4 and 15.4.5 immigration and emigration, 15.4.7 audit considerations). Chapter 12.0, section 12.13.0, on dispositions of taxable Canadian property and section 116 (modified 1 September 2026). The manual is the Agency’s internal guidance, published in severed form, and is not law.
• CRA technical interpretations on residence are not published on canada.ca, and none is cited here.

← Relevant case lawRegulations, forms, and elections →

Regulations, forms, and elections

• Income Tax Regulations, C.R.C., c. 945, s. 102(1)(d) (no personal credits in computing source deductions for a non-resident employee), s. 104(2) (no withholding from an employee neither employed nor resident in Canada, except for remuneration attributable to duties performed in Canada and certain deferred remuneration), and s. 105 (15% withholding on fees, commissions, or other amounts paid to a non-resident for services rendered in Canada).
• Income Tax Regulations, Parts IV and XXVI: s. 400 and s. 402 (allocation of a corporation’s taxable income among provinces by permanent establishment); s. 2601 (an individual’s income is earned in the province of residence on the last day of the year, read as the last day of Canadian residence for an emigrant, subsection 2601(5)); s. 2602 (a non-resident individual’s income earned in a province is employment income attributable to duties performed there and business income earned there).
• Form NR73, Determination of Residency Status (Leaving Canada), and Form NR74, Determination of Residency Status (Entering Canada) (2024 editions): requests for the CRA’s opinion on residence status. No statutory provision requires either form, and the CRA’s pages describe them as for taxpayers who “need help determining” their status.
• The T1 return and Guide 5000-G (province or territory of residence on 31 December); the Income Tax Package for Non-Residents and Deemed Residents of Canada with Guide 5013-G; T2 Schedule 97, Additional Information on Non-Resident Corporations in Canada; Form T4A-NR (payments to non-residents for services rendered in Canada, Reg. 105); Form NR4 (Part XIII amounts); Form T2062 (certificate of compliance for a disposition of taxable Canadian property, section 116); Forms T1161 and T1243 (emigrants, sections 128.1 and 233.3).
• Section 2 contains no election. The elections that follow a change of residence are in section 128.1 (subsections 128.1(4)(d) and (6) to (8)) and in sections 216 and 217, which are not examined here.

← CRA documentsCompliance →

Compliance

• Who must file. A return is required, subject to subsection 150(1.1), from a corporation that at any time in the year was resident in Canada, carried on business in Canada, or disposed of taxable Canadian property, within six months after the year-end (paragraph 150(1)(a)); from a trust within 90 days after the year-end (paragraph 150(1)(c)); and from an individual by 30 April, or 15 June where the individual or the individual’s cohabiting spouse or common-law partner carried on business (paragraph 150(1)(d)), subject to the individual exemption in paragraph 150(1.1)(b). Subsection 150(5) excludes certain dispositions by a non-resident for which no tax is payable and security has been given.
• Which return. A non-resident with employment or business income in one province files that province’s package; a non-resident with several types of income or income from several jurisdictions files the non-resident and deemed-resident package with Form T2203 (Guide T4058).
• Provincial tax. An individual pays tax to the province of residence on 31 December, or the last day of Canadian residence for an emigrant (Reg. 2601); a non-resident individual pays provincial tax on employment income attributable to duties performed in a province and on business income earned there (Reg. 2602); deemed residents under subsection 250(1) pay a federal surtax in place of provincial tax (CRA, “Deemed residents of Canada”). A corporation pays provincial tax where it has a permanent establishment (Regs. 400 and 402).
• Withholding. Employers withhold on remuneration for duties performed in Canada by non-residents (Reg. 104(2)); payers withhold 15% on services rendered in Canada by non-residents (Reg. 105) and report on T4A-NR; purchasers of taxable Canadian property withhold under section 116 unless a certificate is obtained.
• Treaty residence. A taxpayer who is resident in Canada under the Act and also resident in a treaty country must apply the residence article before filing: first whether the person is “liable to tax” in the other State on the comprehensive basis Crown Forest requires (paras. 40 and 62), then the tie-breaker in paragraph 2 (individuals) or paragraph 3 or 4 (companies and other persons). If the treaty awards residence to the other State, subsection 250(5) makes the person a non-resident from that time for all purposes of the Act, the departure rules in subsection 128.1(4) apply, and the person files thereafter as a non-resident under subsection 2(3) with Part XIII withholding on Canadian-source passive income (Folio S5-F1-C1, paras. 1.37–1.38 and 1.45; explanatory notes of October 1998). Keep the evidence that establishes both stages: foreign tax returns and assessments, the permanent home and centre-of-vital-interests facts, and, for a company, where it was created and where its central management and control is exercised. Undefined treaty terms take their meaning under the Act as amended (Income Tax Conventions Interpretation Act, s. 3). Where the tie-breaker leaves the question to the competent authorities, as it does for dual-resident companies under most treaties and under Article 4(1) of the Multilateral Instrument, the taxpayer must request a competent authority determination and, absent agreement, obtains no treaty relief (MLI, Art. 4(1); Folio S5-F1-C1, para. 1.57). A dual-resident corporation is directed by the CRA to contact the International Tax Section of its tax services office (CRA, “Residency of a corporation”).
• Change of residence. The departure-tax deemed disposition in subsection 128.1(4) and the immigration step-up in subsection 128.1(1); Form T1161 where the fair market value of all property owned on departure exceeds $25,000 (CRA, “Leaving Canada (emigrants)”).
• Reassessment period. Three years after the original assessment for individuals and Canadian-controlled private corporations, four years for other corporations and mutual fund trusts (subsection 152(3.1)); a later reassessment requires a misrepresentation attributable to neglect, carelessness, or wilful default, fraud, or a waiver (paragraph 152(4)(a)), and paragraph 152(4)(b) allows a later reassessment, within the further period it provides, where the reassessment is made as a consequence of a transaction with a non-resident with whom the taxpayer did not deal at arm’s length or to give effect to sections 94, 94.1, or 94.2 (subparagraphs 152(4)(b)(iii) and (vii)).
• Objections. An individual (other than a trust) or a graduated rate estate may object within the later of one year after the filing-due date and 90 days after the notice of assessment is sent; any other taxpayer has 90 days (subsection 165(1)).
• Records. Because residence is decided on the whole of the facts, keep the evidence of ties and their severance for each year: leases and sale documents, the dates the family moved, foreign tax returns and assessments (which establish liability to tax abroad), travel records, and the closing of Canadian accounts and coverage. A day count is needed for the sojourner rule and for the treaty tests.

← Regulations, forms, and electionsPlanning and dispute notes →

Planning and dispute notes

Planning

• Decide which residence question is in play before advising. Factual residence, deemed residence under subsection 250(1), treaty residence, and deemed non-residence under subsection 250(5) are distinct inquiries with different evidence; a claim to have sojourned is inconsistent with a claim to have resided (Dysert, note 2).
• A departure is effective only when the significant ties are severed. A home kept available (including one not leased at arm’s length), a spouse or dependants remaining, and continued economic integration are what keep taxpayers resident in the decided cases (Gaudreau; McFadyen; Johnson; Guo; Biya; Folio S5-F1-C1, paras. 1.11–1.13 and 1.49). Intention to return is a factor but does not override the facts (Gaudreau, paras. 2–3; Guo, para. 18). Where the taxpayer will be resident in a treaty country, plan for the tie-breaker rather than for severance alone, and obtain proof of comprehensive liability to tax there (Crown Forest; McFadyen (TCC), para. 151).
• Work the treaty sequence in full for any client with a foreign home, and document each step. Domestic residence under the Act comes first; then liability to tax in the other State, which turns on exposure to comprehensive liability on worldwide income rather than on tax actually paid (Crown Forest, paras. 40 and 62; Alta Energy, para. 54); then the tie-breaker, where the permanent home test is usually decisive and a Canadian home that is not leased at arm’s length keeps the test in play (Folio S5-F1-C1, paras. 1.46–1.49); then the consequences of subsection 250(5), which include the deemed disposition on departure and the loss of resident-only treatment. For the United States, remember the special rule in Article IV(1) for citizens and green-card holders, who are United States residents for treaty purposes only if they have a substantial presence, permanent home, or habitual abode there and closer personal and economic relations to the United States than to any third State, and the company rule in Article IV(3), under which a corporation created under the laws of only one State is resident only there. For other treaties, a dual-resident company should expect a competent authority process rather than a mechanical rule, and under Article 4(1) of the Multilateral Instrument no relief until agreement is reached.
• Model the departure tax under subsection 128.1(4) before the date of departure is fixed, and remember that subsection 250(5) can trigger it without any physical move (explanatory notes of October 1998).
• For arrivals, the date residence begins fixes the section 128.1(1) step-up and the start of worldwide taxation; establishing ties on entry generally makes that the date of arrival (Folio S5-F1-C1, para. 1.28). A non-resident acquiring Canadian property for later retirement should lease it at arm’s length if residence is not intended yet (para. 1.26).
• For corporations and trusts, residence follows where decisions are actually made. Board or trustee meetings held abroad do not help if the substantive decisions are made in Canada by a controlling shareholder or by beneficiaries (Fundy Settlement, paras. 9 and 14–15; St. Michael Trust, para. 68; Backx, paras. 8 and 15). Minutes should record real deliberation by the persons who in law hold the powers. Where a Canadian-incorporated corporation is managed abroad, subsection 250(4) still deems it resident, and only a treaty tie-breaker and subsection 250(5) can displace that.
• For non-residents doing business with Canada, the questions are, in order, whether business is carried on in Canada at common law or under section 253, whether a treaty permanent establishment exists, and how income is allocated under paragraph 4(1)(b). A non-resident can carry on significant business here without a permanent establishment (Knights of Columbus, para. 84), but the Regulation 105 withholding and the filing obligation apply regardless, and a refund requires a return.
• For non-resident employees, agree the allocation method for duties performed in Canada with the employer in advance; the courts have accepted flying time for aircrew and the pay structure of the contract generally (Sutcliffe; Price), and the Tax Court has invited legislation of a standard method (Price (TCC), paras. 54–55).
• The NR73 and NR74 forms are optional and the opinion they produce binds no one; where certainty matters, the Rulings Directorate may issue an advance ruling on residence “in appropriate circumstances” (Folio S5-F1-C1, para. 1.56).

Disputes

• Onus. Where the Minister assessed on the basis of residence and pleaded the facts, the taxpayer bears the usual burden of making a prima facie case against the assumptions (Snow, para. 28; Tanga, para. 22; Johnson, paras. 38–39). Where the Crown first raises non-residence in the appeal and had assumed residence, the Crown bears the onus (Perlman, paras. 2 and 39). A pleading that puts “resident of Canada” in issue is enough to permit argument on ordinary residence (Biya, para. 34). An assumption that a corporation’s controlling mind and management was in Canada is a conclusion of mixed fact and law and may be struck if the Crown refuses particulars of the facts beneath it (Adboss, paras. 15–17 and 21–24).
• Standard of review. A finding of residence, being factual or of mixed fact and law, is reviewed on appeal for palpable and overriding error (Laurin, paras. 3–4; McFadyen (FCA), para. 1; Backx, para. 15); the meaning of a treaty term such as “habitual abode” is reviewed for correctness (Lingle, para. 5).
• Plead and prove each year separately. Residence in one year does not establish it in the next (Johnson, para. 54), and a court will not entertain a new date of departure without an amendment to the pleadings (Grant, paras. 12–16).
• Prove the foreign side. Treaty residence requires evidence of comprehensive liability to tax abroad (Crown Forest, paras. 40 and 62; McFadyen (TCC), para. 151); where foreign law is not proved the court may apply Canadian law by default (Yoon, paras. 12–17). Earlier CRA correspondence accepting a position does not bind the Minister on reassessment (Nedelcu (FCA), para. 21; Backx, paras. 11–15).
• Consider the alternative charge. A taxpayer who defeats residence may still be taxable under subsection 2(3) as carrying on business or employed in Canada, as the Tax Court remarked in Mahmood (para. 65), and under Part XIII on Canadian-source passive income.
• Jurisdiction. The Tax Court determines residence, including treaty residence, in an appeal from an assessment (McFadyen (FCA), para. 2); competent authority assistance under the treaty is a separate route (Folio S5-F1-C1, para. 1.57).
• Objection deadlines are in subsection 165(1); see Compliance.

← ComplianceProvincial and treaty parallels →

Provincial and treaty parallels

• Ontario. The Taxation Act, 2007, S.O. 2007, c. 11, Sch. A, taxes “[e]very individual who is resident in Ontario on the last day of the year” and every individual not so resident “who has income earned in Ontario for the year” (subsection 4(1)), and every corporation “that has a permanent establishment in Ontario at any time in a taxation year” (subsection 27(1)). It has no definition of residence of its own: Part XVII of the federal Act applies (subsection 1(5)), the Act is interpreted consistently with the federal Act (subsection 1(6)), and subsection 1(2) resolves residence in more than one province by principal place of residence and reads “last day” of the year as the last day of Canadian residence for an emigrant.
• Quebec. The Taxation Act, CQLR c. I-3, s. 22, taxes an individual “resident in Québec on the last day of a taxation year” and a corporation “having an establishment in Québec at any time in a taxation year”; s. 23 reads the last day as the last day of Canadian residence for an emigrant; s. 25 taxes an individual resident in Canada outside Quebec who carried on business in Quebec; s. 26 is the analogue of subsection 2(3), reaching an individual “who was not resident in Canada at any time in a taxation year and who, in the taxation year or a previous taxation year, was employed in Québec, carried on a business in Québec or disposed of a taxable Québec property”; and s. 27 taxes a non-resident corporation disposing of taxable Quebec property. The residence rules are in Book I: s. 8 deems residence in Quebec for sojourners of 183 days who were ordinarily resident outside Canada and for the other classes paralleling subsection 250(1); s. 10 parallels subsection 250(3); s. 11 parallels subsection 250(4); and s. 11.1 deems a corporation non-resident where subsection 250(5) of the federal Act so deems it.
• Alberta. The Alberta Personal Income Tax Act, RSA 2000, c. A-30, s. 3(1), charges an individual resident in Alberta on the last day of the calendar year, one resident elsewhere in Canada with Alberta business income, and one not resident in Canada with income for the year; the Alberta Corporate Tax Act, RSA 2000, c. A-15, s. 5(1), charges a corporation with a permanent establishment in Alberta.
• Tax collection agreements. Federal administration of provincial income tax rests on tax collection agreements authorized by the Federal-Provincial Fiscal Arrangements Act, R.S.C. 1985, c. F-8, s. 7; which provinces are party, and for which taxes, was not verified here.
• Treaties. Article IV of the Canada–United States Convention, given force by the Canada–United States Tax Convention Act, 1984, S.C. 1984, c. 20: paragraph 1 (liable to tax by reason of domicile, residence, citizenship, place of management, place of incorporation, or similar criterion, with the special rule for citizens and green-card holders added by the 1995 Protocol), paragraph 2 (the individual tie-breaker), paragraph 3 (companies, as replaced by the 2007 Protocol), and paragraph 4 (estates, trusts, and other persons, by mutual agreement). Article 4 of the Canada–United Kingdom Convention follows the OECD pattern and refers dual-resident persons other than individuals to mutual agreement; its paragraph 1 was replaced by the 2014 Protocol to add place of incorporation. Article 4 of the Multilateral Instrument, S.C. 2019, c. 12, replaces such provisions in covered agreements where both parties have so notified. The Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, s. 3, gives undefined treaty terms their meaning under the Act as amended from time to time, and s. 4.3 deems a subsection 94(3) trust resident in Canada for treaty purposes.

← Planning and dispute notesAnnotated cross-references →

Annotated cross-references

• Section 3: income from sources inside or outside Canada, the reason the subsection 2(1) charge is worldwide.
• Section 114: taxable income of an individual resident for only part of the year, displacing subsection 2(2).
• Section 115: taxable income earned in Canada, the base for subsection 2(3), including treaty-protected income and property; section 116: certificates and purchaser withholding on dispositions of taxable Canadian property.
• Section 117: rates applied to taxable income or taxable income earned in Canada.
• Section 128.1: deemed dispositions on becoming and ceasing to be resident.
• Section 94: deemed residence of certain non-resident trusts.
• Section 149: persons exempt from Part I tax on taxable income for a period.
• Subsection 248(1): “person”, “taxpayer”, “individual”, “corporation”, “non-resident”, “employed”, “taxable income”, “taxable income earned in Canada”, “taxable Canadian property”, and “tax treaty”.
• Section 250: deemed residents (subsection 250(1)), ordinarily resident (subsection 250(3)), corporations (subsections 250(4), (5.1), and (6)), and deemed non-residents (subsection 250(5)).
• Section 253 and section 253.1: extended meaning of carrying on business in Canada, and limited partners.
• Part XIII (section 212): the separate charge on non-residents’ Canadian-source passive income; section 219.1: corporate emigration tax.
• Section 150, section 152, and section 165: returns, reassessment periods, and objections.

← Provincial and treaty parallelsSources →

Sources

• Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 2: Justice Laws Website (Act current to 3 September 2026, last amended 18 June 2026), the French text, the single point-in-time version from 31 August 2004, and amendments not in force. Related provisions read on the same site: ss. 3, 114, 115, 116, 117, 128.1, 149, 150, 152, 165, 248, 250, 253, and 253.1; Income Tax Application Rules, R.S.C. 1985, c. 2 (5th Supp.), ss. 9 and 12; Interpretation Act, R.S.C. 1985, c. I-21, ss. 8.1, 35, and 37 (Act current to 21 September 2026); Income Tax Act, s. 255; Income Tax Application Rules full text, ss. 8, 10(4), and 26(30) (Act current to 21 September 2026); Income Tax Regulations, C.R.C., c. 945, ss. 102, 104, 105, 400, 402, 2600 to 2603, as linked above; Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4 (full text, ss. 2, 3, 4, 4.3, 5, 6.2, 6.3, and 7; Act current to 21 September 2026); Canada–United States Tax Convention Act, 1984, S.C. 1984, c. 20 (full text); Multilateral Instrument in Respect of Tax Conventions Act, S.C. 2019, c. 12 (annual statute); Federal-Provincial Fiscal Arrangements Act, R.S.C. 1985, c. F-8 (full text).
• Historical texts: Revised Statutes of Canada, 1985, 5th Supplement (explanatory note and s. 2); Library of Parliament, Canadian Parliamentary Historical Resources (parl.canadiana.ca): Bill 117 of 1917 (Senate and House of Commons Bills, 12th Parl., 7th Sess.), Senate Debates of 3 September 1917, House of Commons Debates of 2 August 1917, and Votes and Proceedings of 6 and 20 September 1917; Bill 338 of 1948 and Votes and Proceedings of 30 June 1948; Bill C-259 of 1971 (first reading); Votes and Proceedings for the Notice of Ways and Means Motion of 25 November 1983 and royal assent of 19 January 1984, and for royal assent of Bill C-72 on 29 October 1985. The enacted texts of the 1917, 1948, 1952, and 1972 provisions were not read on an official site; the bills and Hansard were.
• Department of Finance: Explanatory Notes to a Notice of Ways and Means Motion relating to Income Tax (November 1983), clause 1; Technical Notes to a Notice of Ways and Means Motion Relating to Income Tax (9 September 1985), clause 1; Income Tax Amendments, Bill C-72: Special Release (1985); Legislative Proposals and Explanatory Notes Relating to Income Tax (October 1998), explanatory note on subsection 250(5), pp. 296–298; Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Technical Amendments) (23 July 2026), read only through a summarizing fetch; consolidated texts of the Canada–United States Convention, the Canada–United Kingdom Convention, and the 2014 Protocol; OECD, Canada’s MLI position deposited 29 August 2019.
• Royal Commission on Taxation, Report, vol. 4 (1966), Part D, chapter 26, publications.gc.ca, pp. 502 and 542–543 (page numbers from the scan’s footers).
• Supreme Court of Canada: Fundy Settlement, Alta Energy, Crown Forest, Tara Exploration. Thomson (1946) and Beament (1952) are not in the Court’s online collection, which begins in 1970, and are cited as quoted in the decisions read.
• Federal Court of Appeal: Backx, Adboss, St. Michael Trust, Laurin, Hauser, Gaudreau, Allchin, McFadyen, Lingle, Nedelcu, Price, Maya Forestales.
• Tax Court of Canada: Garron, Dysert, Biya, Tanga, Persaud, Perlman, Snow, Mahmood, Johnson, Yoon, Revah, Guo, McFadyen (2000), Nedelcu, Sutcliffe, Price, Maya Forestales, Knights of Columbus, American Income Life, Grant, Zhu. All judgments were read in full text on the court’s site on 28 September 2026; the older decisions listed as cited only through them were not.
• Canada Revenue Agency: Folios S5-F1-C1 and S6-F1-C1, IT-391R, Guide T4058, the web pages, the Income Tax Audit Manual, and the forms, as linked under “CRA documents” and “Regulations, forms, and elections”. The canada.ca pages were read through a summarizing fetch, and the quotations from them should be spot-checked against the live pages before this page is marked reviewed.
• Ontario: Taxation Act, 2007 (e-Laws, consolidated from 1 July 2026). Quebec: Taxation Act, CQLR c. I-3 (LégisQuébec, up to date to 10 June 2026). Alberta: Alberta Personal Income Tax Act and Alberta Corporate Tax Act (King’s Printer).
• Canadian Tax Foundation items under “Selected commentary”: catalogue entries only; the site refused automated access.

← Annotated cross-references