In Permanent Residence

More and more foreign nationals are seeking to purchase a second home in Canada either for temporary visits or for the long-term permanent residency hopes.

Usually, there is no problem with a foreign national purchasing property, especially if the individual has no intention of living in Canada for more than 6 months. The only tax consideration that may arise is the amount of capital gains that the individual will have to pay upon disposition or the holdback on rental income.

The challenge comes when individuals, once here, wish to remain in Canada for more than 6 months. The complexity arises because the concept of residency in immigration differs from the concept of residency for income taxation purposes.

Generally speaking, individuals can come into Canada for up to 6 months as visitors or, as immigration calls them – temporary residents. They can even extend such stays up to 12 months and in the odd occasion, up to 18 months provided that the intention remains bona fide and temporary. However, immigration does not appreciate individuals simply renewing status in order to live in Canada on an indefinite basis under the guise of being visitors.

Canada Revenue Agency (CRA) has a different view of residency. Once a person has remained in Canada for more than 183 days (6 months), CRA can technically ask the individual to pay income tax on world-wide income. An individual may thus be deemed to be resident Canada by virtue of “sojourning” in Canada throughout a taxation year for a period aggregating 183 days or more.

Although Canada does have certain tax treaties, such as with the United States, which invoke a number of “tie breaker” rules to determine where residency is for tax purposes, the 183 day mark is one of the benchmarks which CRA will use to determine whether the visitor is required to pay Canadian tax.

There are a number of factors (for CRA) which may be relevant in the determination of an individual’s residency. For example, some of the questions to be asked are:

  • How long and how frequent have been visits to Canada?
  • Where are the spouse and dependents living?
  • Where is the personal property, furniture and clothing located?
  • What were the purposes of the visits to Canada?
  • Is the ownership of residence in Canada on a long term basis?
  • What memberships does the individual have in Canadian social clubs, organizations, community groups?
  • Is there a telephone listing in Canada?
  • How many bank accounts are there in Canada?
  • Are there credit cards issued by Canadian financial institutions?
  • Are there local newspaper subscriptions with a Canadian address?
  • Was there a will prepared in Canada?
  • Has there been a substantial severing of all ties with the former country of residence?

Thus, purchasing a home in Canada by a foreign national may be the least of the concerns when one considers the complexities of immigration combined with income taxation.