Determining Residency 

Tax Forum

Determining Residency

In the absence of an acid test for residency, CGAs face a grey zone when asked to determine residency.

FROM: JAN-FEB 2004 ISSUE | BY DON GOODISON

I don't know about anyone else, but I find the rules relating to residency very confusing. To top it off, I am frequently asked to give an opinion on a client's residency. Sure, the Supreme Court of Canada handed down a leading decision in determining residency in Thomson vs. M.N.R., but that was in 1945, almost 60 years ago! How relevant can Thomson be? In Pamela Allchin (Appellant) vs. Her Majesty the Queen (Respondent), 2003 TCC 476, the Tax Court of Canada held that the tests set down by Thomson are still valid in determining a person's residency.

Here's a quick review of both the Thomson and the Allchin cases. In the Thomson case, the appellant owned a home in New Brunswick that he resided in during the summer months. He was very careful not to stay more than 183 days in order to avoid being taxed as a Canadian resident. However, the Supreme Court looked past the 183 days and focused on the permanency of his home. Justice Rand stated, "He is at East Riverside as at his 'home' and the mere limitation of time does not qualify that fact."

Justice Kellock added:

There is not the slightest difference between his use of his Canadian home and that of either of his two American homes. All three establishments are essentially of the same nature and are equally regarded by him as 'homes' in the same sense. The appellant's residence in each is in the ordinary and habitual course of his life and there is no difference in the quality of his occupation in any one of them, although he may and does occupy each at different periods of the year.

In the Allchin case, Allchin was employed as a nurse at the Metropolitan General Hospital in Windsor, Ontario, in 1991, when she resigned from the hospital to seek employment in the United States. In the meantime, she furthered her education by enrolling in a school in Michigan. She found employment in September 1992 with Repak Surgical Enterprises Inc. and remained with Repak until January 1996, when Johnson & Johnson hired her. In both jobs, she was required to travel and work in the U.S. selling hospital supplies. In 1997, she returned to Canada.

Allchin considered herself a non-resident of Canada for the years 1993 to 1995, and did not report her worldwide income on her tax returns for those years. The Minister took the position that she was resident in Canada and issued assessments for 1993, 1994, and 1995. In addition to the tax assessed, the Minister also imposed penalties under subsection 163(2) for gross negligence. Allchin appealed to the Tax Court of Canada.

Allchin argued that:

• She maintained a residence in the U.S. at all times during the years under appeal;
• She was issued a Green Card by the U.S. government, which entitled her to work in the U.S.;
• Her employment was exclusively in the U.S. and she was required to travel to different parts of the country;
• She maintained a bank account in the U.S.;
• The addresses shown on her credit cards were in the U.S.

The Minister countered that:

• During the years Allchin was employed in the U.S., her husband and two children remained in Windsor and she visited her family frequently;
• Her residences in the U.S. were a room in her cousin's home and a room in a friend's condominium. She did not have a lease for either place, and did not pay rent. Part of the time, she lived on her boat in a Michigan marina, but listed her residence on the lease as Windsor, Ontario;
• Her mailing addresses in the U.S. were postal boxes in Detroit and Allen Park, Michigan;
• She used her U.S. bank account for miscellaneous expenses and sent the bulk of her money to her husband in Canada;
• She did not cancel her Ontario Medical Plan coverage until 1996, and retained her Ontario driver's licence until 1995;
• She continued to use the services of her doctor and dentist in Windsor;
• In 1995, Allchin's husband purchased a new home in the Windsor area. He registered the home in both his name and his wife's, and signed a declaration that she was a Canadian resident;
• She remained an active member of the Windsor Yacht Club during the period of U.S. employment, rather than opting for the "out of town" membership offered by the club.

In reaching its decision, the court referred to the facts above as Allchin's connections to Canada and the U.S., and concluded that her connections to the U.S. lacked the sufficient permanency to sever her ties to Canada. Her connections to the U.S. were of a temporary nature, and while she may have intended to sever ties to Canada, she had not done so appropriately. She continued to have considerable permanent ties to Canada, as evidenced above. Sharing a room and using a post office box as a mailing address does not establish a permanent residence. The court held that Allchin was a resident of Canada for the years 1993, 1994, and 1995, and dismissed her appeal. However, the court concluded that she honestly believed she was a non-resident, and that her method of filing did not constitute gross negligence.

In dismissing Allchin's appeal, the court paraphrased the remarks of Justice Rand, indicating the amount of time spent in the U.S. did not change the fact that her permanent home was in Canada.

As I said at the beginning of this article, I find it difficult to determine a person's residency. There is not a quick and easy formula; each case is different. There are many questions that require answering and no one thing in itself determines residency. Rather, it is the preponderance of facts that decides the issue. Justice Rand in Thomson said as much when he stated:

The graduation of degrees of time, object, intention, continuity and other relevant circumstances, shows, I think, that in common parlance "residing" is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible, and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter.

When I am asked what it takes to become a non-resident of Canada, I begin by telling people that they should completely divest themselves of all things Canadian. With that starting point, we can then deal with the "what if" questions, such as, "What if I keep a bank account in Canada?" or "What if I still own my house in Canada?" At the end of it all, my answer is usually an emphatic "maybe." I really hate that.

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Don Goodison, CFP, FCGA, is a partner of Kemp Harvey Goodison, Certified General Accountants, in Burnaby, B.C. E-mail goodison@axionet.com.