Jul 19, 2017
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“There is no set hierarchy of factors that one can prioritize or list when determining provincial residence status.”
It is not unusual for clients to ask their tax advisors to recommend ways to take advantage of lower tax rates that may be available in other provinces. For example, in Ontario the highest marginal tax rate on salaries (for 2014) is 49.53% whereas in Alberta it is 39%. The differential is similar on ineligible dividends where the top Ontario rate is over 40% versus Alberta’s top rate of 29.36%.
Recent case law, amendments to legislation and increased scrutiny by the CRA are making interprovincial planning more difficult. The residence of an individual is the basis for determining which Province can tax a person. Recent proposed changes to legislation regarding the residence of certain subsets of trusts have made residency of the beneficiaries of certain trusts the primary factor in determining which province has the right to tax the individual or trust.
The tax rules state that an individual need only be resident in a province at the end of the calendar year to be taxable there. But what does this mean? Is a person who goes to Banff for a ski holiday over New Year’s resident in Alberta on December 31? Likely not, unless they have more ties to Alberta than to another province.
The determination of an individual or beneficiary’s residence is ultimately a question of fact. The courts and the CRA look at factors that tie an individual or beneficiary to that particular province. Examples of such provincial ties include the provincial residence of the individual’s immediate family, location of one’s usual home, province of issuance of one’s driver’s license, health care card and location of bank accounts to name just a few.
If the person in the above example was more than vacationing in Alberta on December 31 then they could be resident there, effectively, for the whole year for tax purposes. For example, if the person was also in Alberta making arrangements to relocate to the province (such as trying to find a new home in Alberta, arranged temporary accommodations in Alberta until a permanent home was found and was selling his house in Ontario) he would have a stronger argument that he was an Alberta resident for 2014. The fact that the person had not moved his driver’s license and heath care card should not, in these set of facts, lead to a conclusion of Ontario residence.
There is no set hierarchy of factors that one can prioritize or list when determining provincial residence status. The conclusion will be based on the facts in a particular situation and the CRA may not agree. It is important that a qualified tax specialist be consulted to determine provincial residence status. Your TSG representative would be happy to help you.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.