North America: Individual tax residency in Canada - Impact of COVID-19

In brief

Canada Revenue Agency (CRA) has finally released some guidance on the Canadian income tax status of non-resident individuals who are present in Canada as a result of COVID-19 related travel restrictions ("Travel Restrictions").


Individuals can be resident in Canada for Canadian income tax purposes according to a common law test (which looks at all the relevant facts and circumstances), or as a result of a bright line test. The latter test generally deems an individual to be a resident of Canada if the individual "sojurns" in Canada for a total of 183 days or more in a calendar year.

Subject to certain caveats (see below), CRA is now offering administrative relief for individuals who might otherwise be considered to be common law or deemed residents of Canada as a result of physical presence in Canada that is solely due to Travel Restrictions.

Although the details are somewhat scanty, it appears that CRA will accept that relevant Travel Restrictions may be imposed by the Canadian government, a foreign government, or by the private sector (such as an employer's directive that requires employees to refrain from travelling and to remain in a specific jurisdiction).

One of the key requirements for CRA administrative relief is that the failure to leave Canada must be solely attributable to the Travel Restrictions. This could create a number of ambiguous situations, such as where a non-resident of Canada is technically able to leave Canada but the individual chooses to stay in Canada in order to care for his or her elderly quarantined relatives who cannot travel.

CRA did indicate that they will consider whether a particular tax issue has arisen as the result of the Travel Restrictions on a case-by-case basis.

CRA also stated that at the present time, it is uncertain how long it will be necessary for the Travel Restrictions to remain in place. Accordingly, the guidance described below will apply from 16 March until 29 June 2020, at which time CRA may extend them if necessary, or rescind them if no longer required.

Further information may be obtained at: update/guidance-international-income-tax-issues.html#h_i

The following is an excerpt from the specific text of CRA's administrative relief regarding individual residency:

CRA notes that the COVID-19 crisis has resulted in the imposition of safety measures by governments around the world, including the Canadian government, to protect the health of their citizens. Similarly, businesses have imposed safety measures to protect their employees. These measures include restrictions on travel (the "Travel Restrictions"). The Travel Restrictions have resulted in certain taxpayers and their representatives expressing concerns regarding a number of potential Canadian income tax issues.

I. Income Tax Residency

A. Individuals

In general, an individual's residence for Canadian tax purposes is a common-law factual determination based on the individual's residential ties with Canada. In addition, an individual who sojourns (e.g., is physically present) in Canada for a period of, or periods the total of which is, 183 days or more in a tax year will be deemed to be resident in Canada throughout the year.

Potential Issue

Individuals visiting Canada at the time the Travel Restrictions were imposed may not have been able to return to their country of tax residence as they had intended and instead have been required to remain in Canada. Could this extended stay in Canada result in the individual being resident in Canada for Canadian tax purposes?

Agency position

Where the individual has remained in Canada solely because of the Travel Restrictions, that factor alone will not cause the Agency to consider the common-law factual test of residency to be met. In addition, as an administrative matter and in light of these extraordinary circumstances, the Agency will not consider the days during which an individual is present in Canada and is unable to return to their country of residence solely as a result of the Travel Restrictions to count towards the 183-day limit for deemed residency. This will be the Agency position where, among other things, the individual is usually a resident of another country and intends to return, and does in fact return, to his or her country of residence as soon as he or she is able to do so.

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