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annabruce, you're technically right - if you submit an extension, you have implied status until they make a decision. Submitting an inland PR app + OWP app before you receive word on the initial visitor extension should (in theory) give you implied status until the PR app reaches AIP. If they approve the first visitor extension, submitted separately, then for sure everything is fine. However, if they refuse the first extension, it will then be on record that she's out of status (as they will have no idea there is a PR/OWP app working it's way through the system), and it's unlikely they would process the OWP as in status. All other things being equal, though, they would still process the OWP and grant AIP, due to the spousal public policy.

Like I said above, CIC doesn't always read what's in front of them and process it correctly.

In my inland PR application, I had recently left Canada for a few weeks and re-entered. As required by the extension app, I included photocopies of all my previous entry stamps into Canada, in reverse chronological order, labelled. The most recent page, at the front, had written on it at the top in big, friendly letters:

"Most recently entry into Canada and proof of current visitor status in Canada."

I'd re-entered as a visitor shortly before my old work permit expired. Some how, they decided my status had expired when my work permit ran out (which was totally wrong, since I didn't enter on the work permit and was granted a 6-month visitor stamp).

I'm just saying, even if you understand the rules, it doesn't mean they aren't going to decide you're out of status.

Now, in your case since your wife applied inland, I really wouldn't worry too much - the spousal public policy means that even if they think she's out of status they'll carry on processing, and if they do that you can raise a stink and try to get them to correct it, like I did. But it's not something to lose sleep over.