Article by Sarah Adler
Originally posted on the PwC Law LLP Blog page
I just received an interesting call from one of my colleagues regarding the intersection of Immigration and Tax matters in Canada. The question posed was if you don’t file an income tax return in Canada based on the fact that you were a non-resident , can you still renew your permanent residence status as you have officially stated to the government that that you are not a resident of Canada. The definition of resident for immigration purposes and tax purposes are different and one is not necessarily exclusive of the other.
On its website, the Canadian Revenue Agency (CRA) states that residency status for tax purposes is based on facts and circumstances and that the individual’s whole situation, including residential ties, purpose and permanence of travel in and out of Canada, and ties abroad must all be considered. Particularly if you have been physically present in Canada for 183 days or more in the tax year with no other significant ties to Canada you may be deemed a Canadian resident for tax purposes.
For the purpose of maintaining your Canadian permanent residence (PR) card an individual is required to remain in Canada for a full two years, or 730 days, in the five year period preceding the application. Although one of the documentary requirements for renewing your PR card is your Notice of Assessment (NOA) from CRA during the relevant period, this does not preclude individuals not having filed income taxes from making a successful PR card renewal application.
If you do the math, you can see that it is possible to meet the 730 day residency requirement for a PR card renewal without triggering tax residency based on physical presence in Canada of 183 days or more in the tax year. Should an applicant be asked to complete a Residency Questionnaire during a PR card renewal application an applicant’s ties to Canada will then be under consideration and the immigration and tax policies then begin to converge. It is important to note that the issuance of follow up Residency Questionnaire on PR card renewal application is common for all but the most straightforward of cases.
In order to qualify for Canadian citizenship, an individual must be physically present in Canada for four full years out of the previous six years, and in each qualifying year the applicant must be physically present in Canada for at least six months. As such, an individual will qualify as a tax resident when preparing to apply for Canadian citizenship. Although the qualifying requirements for Canadian citizenship are set to change in the coming year, the new requirements will likely still trigger tax residency.
Individuals in this situation need to carefully consider which is more important to them given their particular circumstances: the tax savings or the ability to live in Canada as a permanent resident. They must then weight the risks on both sides accordingly. In the end, trying to maintain your Canadian permanent resident status while not qualifying as a resident for tax purposes, is possible but tricky. So maybe you can have your cake and eat it too!