Spouse Non resident tax status

[deadbird]

Hi all. I would appreciate your opinion regarding this.

My wife and I are currently living in the US. We did a short PR landing back in July but did not move to Canada yet. I will shortly be moving to Canada next month but wife will stay back in the US to complete her studies and work for a few years. I am trying to determine her tax status after I move to Canada. I spoke with two professional tax accountants and they both gave me different answers.

As far as I can tell, if I live in Canada, she would be considered to have significant residential ties to Canada and this would make her a canadian resident for tax purposes. However, she's never worked or lived in Canada and she routinely lives and works in Canada. So which is it? resident or non-resident?

Here's the page determining residency page - https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/determining-your-residency-status.html

 

[pie_vancouver]

Your wife is non-resident for tax purposes, she will pay tax on income she receive from sources in Canada.

 

[Rob_TO]

Your wife is non-resident for tax purposes, she will pay tax on income she receive from sources in Canada.

Not necessarily. A spouse living in Canada is a "significant residential tie" so could make her a deemed/factual resident for tax purposes. In this case she would need to pay necessary Canadian income tax even if only getting US income and not physically living in Canada. CRA help line may be able to assist.

https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-5-international-residency/folio-1-residency/income-tax-folio-s5-f1-c1-determining-individual-s-residence-status.html

Of note from this link:
As discussed in ¶1.11, an individual's spouse or common-law partner, dependants, and dwelling place, if located in Canada, will almost always constitute significant ties with Canada. In addition, the CRA considers that where an individual entering Canada applies for and obtains landed immigrant status and provincial health coverage, these ties will usually constitute significant residential ties with Canada. Thus, except in exceptional circumstances, where landed immigrant status and provincial health coverage have been acquired, the individual will be determined to be resident in Canada.

 

[pie_vancouver]

The US-Canada tax treaty will consider her non-resident for tax purposes.

 

[deadbird]

Not necessarily. A spouse living in Canada is a "significant residential tie" so could make her a deemed/factual resident for tax purposes. In this case she would need to pay necessary Canadian income tax even if only getting US income and not physically living in Canada. CRA help line may be able to assist.

https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-5-international-residency/folio-1-residency/income-tax-folio-s5-f1-c1-determining-individual-s-residence-status.html

Of note from this link:
As discussed in ¶1.11, an individual's spouse or common-law partner, dependants, and dwelling place, if located in Canada, will almost always constitute significant ties with Canada. In addition, the CRA considers that where an individual entering Canada applies for and obtains landed immigrant status and provincial health coverage, these ties will usually constitute significant residential ties with Canada. Thus, except in exceptional circumstances, where landed immigrant status and provincial health coverage have been acquired, the individual will be determined to be resident in Canada.

The argument that my tax accountant is making is that in my spouse's case, she is not moving to Canada, and she has no intention of establishing Canadian residency anytime soon. Moreover, she has a home available for her to use in the US. Therefore, they claim that that she will not be considered a Canadian resident until she moves to Canada and establishes residency. In their opinion, simply landing for permanent residence and getting a SIN does not necessarily make someone a Canadian resident.

However, I do agree that there's some ambiguity here and it can be argued either way. So, suppose that she claims herself to be a non-resident and does not file taxes; what's the worst that can happen? They'll apply back taxes to her world income correct? It's not a federal felony or anything like that correct?

 

[pie_vancouver]

Make sure she files income tax in the US for her income earned there, the thing here is we don't want Double taxation that's why there's a treaty, but some people treat themselves as non-resident for tax purposes on both countries and don't file income tax which is not good.

 

[Rob_TO]

The argument that my tax accountant is making is that in my spouse's case, she is not moving to Canada, and she has no intention of establishing Canadian residency anytime soon. Moreover, she has a home available for her to use in the US. Therefore, they claim that that she will not be considered a Canadian resident until she moves to Canada and establishes residency. In their opinion, simply landing for permanent residence and getting a SIN does not necessarily make someone a Canadian resident.

However, I do agree that there's some ambiguity here and it can be argued either way. So, suppose that she claims herself to be a non-resident and does not file taxes; what's the worst that can happen? They'll apply back taxes to her world income correct? It's not a federal felony or anything like that correct?

As you can see from the link I posted, simply landing as PR and having a spouse living in Canada, are significant ties to being determined a resident for tax purposes, even if you don't physically live or work in Canada.

I think there is a section of CRA you can go to, that will confirm your tax residency for you. Lots of this does come down to discretion of any CRA officer who happens to review the file.

In worst case scenario if she claims non-resident but is later audited by CRA and determined she should have been a resident, you are right she will just pay some back taxes and probably some interest, nothing as serious as a criminal offence.

Keep in mind also once she spends 3 years outside Canada, she would be in violation of the PR residency obligation so may be reported and have her PR status revoked when trying to enter Canada again.