Tax residency conflicts

Tax residency conflicts

If you are moving or working between Canada and the U.S., you may need to file tax returns in both countries. Canada and the U.S. have different laws regarding tax residency. It is possible to be a tax resident of both Canada and the U.S. under their respective domestic tax laws. Double taxation may occur where your tax residency is not resolved.

Canadian residency

Canada imposes tax on individuals based on their status as a resident or non-resident of Canada. For Canadian tax purposes, there is no simple rule for determining residency status. The Canada Revenue Agency looks at the amount of “residential ties” an individual has in Canada when determining whether or not an individual is a resident of Canada. It is a subjective analysis.

An individual who is a resident of Canada is subject to Canadian tax on their worldwide income. An individual who is a non-resident of Canada is subject to Canadian tax only on income that is earned in Canada.

Residential ties to Canada include:

  • a spouse or dependent living in Canada
  • a home that is available to you in Canada
  • an employer in Canada
  • personal property located in Canada
  • Canadian bank and investment accounts
  • Canadian credit cards
  • a Canadian drivers license
  • Canadian medical coverage
  • a Canadian mailing address
  • a Canadian passport
  • or even Canadian professional or club memberships

An individual who does not have any ties to Canada may be a tax resident of Canada where he or she “sojourns” in Canada for more than 182 days.

U.S. residency

U.S. tax residency laws refer to the taxation of U.S. citizens as well as “resident” or “non-resident” aliens.

Non-resident aliens

If you are not a U.S. citizen, you are considered a non-resident alien unless you meet certain tests. A non-resident alien is subject to U.S. tax on income that is derived from within the U.S. or on income that is effectively connected with a U.S. trade or business.

Resident aliens

A resident alien of the U.S. is subject to U.S. tax on their worldwide income, similar to a U.S. citizen.

A resident alien for U.S. residency purposes is someone who meets the either the “Substantial Presence Test” or is a Lawful Permanent Resident (Green Card holder). U.S. tax rules associated with tax residency are objective.

The Substantial Presence Test is a formula which measures days of presence in the U.S. over a three year period. A U.S. Green Card holder is a resident alien until they have formally abandoned their Green Card. Meeting either of these tests means you are subject to U.S. tax on your worldwide income.

Residency determination

At Andersen in Canada we have cross-border tax expertise to help you navigate your tax residency issues and avoid double taxation. We can provide you with a residency determination after evaluating your relevant individual facts. In addition, our team can prepare and file the applicable tax returns or forms that are required in both Canada and the U.S. to minimize your tax exposure.