Ordinarily Resident in Canada: Why Leaving the Country Does Not Always End Tax Residency
Many taxpayers assume that physically leaving Canada for work, travel, or family reasons automatically ends their Canadian tax residency. In reality, Canadian tax law applies a much more nuanced analysis. Even when an individual lives abroad for months or years, they may still be considered ordinarily resident in Canada if they maintain sufficient residential ties.
This concept frequently arises in Canada Revenue Agency (CRA) audits and residency determinations. Taxpayers who believe they have become non-residents may be surprised to learn that the CRA continues to treat them as Canadian residents for tax purposes. When this occurs, the consequences can be significant because Canadian residents are taxed on their worldwide income.
Understanding how the concept of being ordinarily resident in Canada operates is essential for anyone leaving the country for an extended period.
What “Ordinarily Resident” Means Under Canadian Tax Law
Canadian tax residency is not determined solely by physical presence. Instead, the analysis focuses on where a person ordinarily resides, meaning the place where they regularly, normally, or customarily live.
The leading decision is Thomson v Minister of National Revenue, where the Supreme Court of Canada explained that a person is ordinarily resident in the place where, in the settled routine of their life, they regularly, normally, or customarily live. The Court emphasized that residency is determined by examining the overall pattern of a person’s life rather than focusing on any single factor.
Courts have consistently held that temporary absences from Canada do not necessarily end Canadian tax residency. An individual may live abroad for extended periods while still remaining ordinarily resident in Canada if they have not meaningfully severed their residential ties.
This principle means that a taxpayer cannot simply rely on the fact that they have left Canada. The broader context of their personal, economic, and social ties must also be considered.
Temporary Absence from Canada Often Does Not End Residency
Canadian courts have repeatedly emphasized that a temporary absence from Canada, even one lasting several years, may still leave a taxpayer resident in Canada if their connection to the country remains intact.
For example, a taxpayer may leave Canada for employment overseas but retain strong ties such as a home, spouse, or other significant connections in Canada. In these situations, the courts often conclude that the individual continues to be ordinarily resident in Canada despite their physical absence.
This approach reflects the principle that residency is based on the overall pattern of a person’s life rather than simply the location where they spend their time.
Canadian courts have repeatedly rejected the argument that residency can be determined solely by counting days spent inside or outside Canada. A taxpayer may spend the majority of a year abroad and still remain ordinarily resident in Canada if their residential ties continue to demonstrate that Canada remains the centre of their ordinary mode of living.
Key Factors the CRA Considers
When the CRA evaluates whether an individual remains ordinarily resident in Canada while living abroad, several factors typically receive close attention.
One important factor is whether the individual has meaningfully severed their residential ties with Canada. Evidence such as selling a Canadian home, relocating family members abroad, and establishing a permanent home in another country may support a finding that Canadian residency has ended.
The CRA also examines how frequently the individual returns to Canada and the length of those visits. Regular or extended visits may indicate that Canada remains a central part of the taxpayer’s life.
Finally, the CRA considers whether the individual has established meaningful residential ties in another country. Establishing a permanent home, relocating family members, and integrating into another jurisdiction can indicate that a taxpayer has genuinely moved their ordinary residence abroad.
Intention Alone Is Not Enough
While a taxpayer’s intention can be relevant, intention by itself is not determinative. The CRA and the courts place much greater weight on objective facts.
For example, an individual may state that they intend to return to Canada one day. However, if they have fully severed their residential ties with Canada and established a stable life abroad, that intention alone will not cause them to remain resident in Canada.
Conversely, a taxpayer may claim they have left Canada permanently while still maintaining significant Canadian ties. In those circumstances, the CRA may determine that the individual remains ordinarily resident in Canada despite their stated intention.
Why Residency Disputes Frequently Arise
Disputes about whether someone is ordinarily resident in Canada often arise during audits involving foreign income, offshore assets, or departure tax.
If the CRA concludes that an individual remained resident in Canada while living abroad, the taxpayer may face reassessments on worldwide income that was never reported in Canada. These reassessments can also lead to penalties and interest.
Because the residency determination depends heavily on facts and evidence, the outcome often turns on how the taxpayer’s circumstances are presented during the audit or objection process.
Residency disputes frequently arise years after a taxpayer leaves Canada. The issue often comes to light when the CRA reviews foreign income, foreign asset reporting forms, property sales, or information received from another tax authority.
Kirshen Tax Law Can Help
Determining whether someone remains ordinarily resident in Canada is a complex legal analysis that depends on the totality of the taxpayer’s circumstances.
Taxpayers who are leaving Canada, living abroad temporarily, or facing a residency audit should obtain advice early in the process. Strategic planning and careful documentation can significantly affect the outcome of a residency determination.
If you are dealing with a CRA residency review or dispute, schedule a free consultation with a Toronto tax lawyer who is experienced in Canadian tax residency matters and can help protect your position and avoid costly reassessments.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.