CHAPTER 08 Tax Considerations
DETERMINATION OF CANADIAN RESIDENCE The term “resident in Canada” is not defined in the Tax Act. A person’s residence is determined by common law criteria, subject to the specific deeming rules in the Tax Act that deem certain persons to be either resident or not resident in Canada. A corporation incorporated in Canada after April 26, 1965 (or, in certain limited situations, before this date) is deemed to be resident in Canada. There is no statutory rule that deems a corporation incorporated outside Canada to be resident in Canada. Under the common law test of residence, a corporation will be considered to be resident in Canada if its central management and control is located in Canada. Central management and control is generally considered to refer to the decision-making in respect of a corporation that is normally exercised by its board of directors. As a result, the place where the board of directors exercises its decision-making powers will generally be the place in which the central management and control of the corporation is located. In the case of an individual, the courts have generally held that residence is determined on the basis of the degree to which an individual “settles into or maintains” his or her ordinary mode of living at the place in question. In addition, an individual will be regarded as establishing Canadian residency if he or she is ordinarily resident in Canada. The determination whether an individual is ordinarily resident in Canada depends on whether Canada is the place where the individual, in the settled routine of his or her life, regularly, normally or customarily lives. In addition, the Tax Act deems an individual who “sojourns” (i.e., stays temporarily) in Canada for an aggregate of 183 or more days during a year to be resident in Canada throughout that year.
The following are the principal sources of non-residents’ income that are subject to tax in Canada: – income from a business carried on in Canada; – income from an office or employment performed in Canada; – gains realized on the disposition of “taxable Canadian property”; and – certain types of passive income such as dividends paid by a Canadian corporation, rent from Canadian real estate, or royalties paid by a Canadian corporation. TAXABLE CANADIAN PROPERTY Taxable Canadian property generally refers to the following: – real or immovable property situated in Canada; – assets used in a business carried on in Canada; – a share of a private corporation, an interest in a trust or an interest in a partnership of whose value more than 50% was derived from any combination of real or immovable property situated in Canada, Canadian resource property, timber resource property, or interests, options or rights in such property at any time in the 60-month period prior to the disposition of such shares or other interests (otherwise than through the ownership of shares or interests that are not themselves taxable Canadian property); and – units of a mutual fund trust and listed shares of a corporation, where at any time during the 60-month period preceding the disposition, a 25% ownership threshold is exceeded and at that time more than 50% of the value of the units or shares was derived from any combination of real or immovable property situated in Canada, Canadian resource property, timber resource property, or interests, options or rights in such property.
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