The current administrative position of the Canada Revenue Agency (‘CRA’) with respect to the residence of an individual may be found in Interpretation Bulletin IT-221R3 (Consolidated) ‘Determination of an Individual?s Residence Status’. It may also be inferred from the questions in CRA Form NR73 ‘Determination of Residency Status (Leaving Canada)’. While the CRA’s administrative position is important, the final arbiter, when residence is in dispute, is the Court. Several recent decisions of the Tax Court of Canada indicate increasing attempts by the CRA to claim that residents who have left Canada remain resident for tax purposes. I shall discuss several cases in reverse chronological order and derive lessons from each of them.
A tax case decided on December 22, 2004, Gaudreau v. The Queen (so far unreported) provides some useful pointers to departing residents. Mr. Gaudreau, a Canadian resident, accepted an offer from his Canadian employer to work on a contract in Egypt. He spent four months working on the contract in Canada and then left for Egypt in September 1996, returning to Canada in April 2000, at the end of the contract. His employment agreement was expressed to be for an indefinite period, but the name of his employer was left blank. Under the signature of the employer’s representative was an indication that Mr. Gaudreau’s return date would be in approximately four years. Mr. Gaudreau and his wife moved to Egypt. They kept their home and furniture in Canada and did not rent out their home. People in Canada looked after the house in their absence, paying bills, etc. Mrs. Gaudreau returned to Canada at least twice while living in Egypt and stayed in their house. In Egypt, the couple rented a semi-furnished apartment on an annual lease. Mr. Gaudreau worked ‘almost seven days a week’ and ‘did not really have a social life’. Their three adult children remained in Canada; one visited them in Egypt during their stay. Mr. Gaudreau kept two bank accounts in Canada. His salary from his Canadian employer was deposited in one of them. His wife owned a car in Canada, stored at their house. In Canada, Mr. Gaudreau had a Registered Retirement Savings Plan (‘RRSP’), credit cards and a safety deposit box. He completed tax form NR73 for each year he was abroad and filed it with his Canadian tax return, even though there is no requirement to do so. On the form, he indicated that he would retire in Canada after completion of his assignment. In the first year that he filed the form, he stated that he would maintain his eligibility for (Canadian) provincial medical insurance cover. From information in the NR73 forms, it seems that he returned to Canada at least once, for 20/30 days, during his stay in Egypt. The Court distinguished the Nicholson case (discussed below) in its judgement, based on the perceived intent of the taxpayer. In contrast to Mr. Gaudreau, Mr. Nicholson had no intention of returning to Canada at the end of his assignment. The Court held that Mr. Gaudreau was a dual resident of Canada and Egypt during his assignment, and so turned to the provisions of the Canada/Egypt Income Tax Convention, Article 4(2), reproduced in Appendix A. The Court concluded that Mr. Gaudreau had a permanent home in both countries, and consequently turned to the next test. Under that test, he is deemed to have been a resident of the state with which his personal and economic relations (centre of vital interests) were closer during the period. The Court looked to the Commentary to the OECD Model Convention Article 4, paragraph 15 and quoted from the condensed version, dated January 28, 2003. The quotation is reproduced in Appendix B.