Year-End Planning: Determine Residency Now

Residents of Canada must file tax returns to report world income in Canadian funds. That means taxpayers will need to gather documentation to report offshore earnings — and new for 2013, more specific information about income earned by offshore assets with a cost of $100,000 or more.

A non-resident, on the other hand, must pay Canadian income tax only on income from sources earned inside Canada. But what is your tax obligation if you or someone in the family has left Canada to study abroad, take a job in a far off land or run a business offshore? If unsure, review tax residency rules with your tax advisor before year end.

All the factors in a particular situation will be considered to determine if a taxpayer is a non-resident for tax purposes. Non-residents, according to CRA, routinely live in another country throughout the year and do not have residential ties in Canada, or they stay in Canada for less than 183 days in the tax year.

The major factor is your residence. Residential ties to Canada include: a home in Canada, a spouse or common-law partner or dependants who remain in Canada, and personal property that is left in Canada, such as a car or furniture. Also considered are social and economic ties in Canada.

Other ties that may be relevant include a Canadian driver's licence, Canadian bank accounts or credit cards, and health insurance with a Canadian province or territory. Residential ties that you maintain or establish in another country may also be relevant.

Discuss the relevant facts with your tax advisor before year end. If you are simply moving to another province before year end, you will be taxed for the whole year based on where you reside on December 31. Moves to a lower taxed jurisdiction, therefore should happen before year end for a better tax result.