Determining Tax Residency

[Milind23]

Hi,

I am planning to move to Seattle on a TN/L1 Visa while my wife stays in Vancouver. I will be paid by a US company into my US account and will not have any income in Canada. My wife will work in Canada. I plan to stay in the US for over 180 days, which will establish my tax residency there. We currently live in a rental in Canada and will continue to do so.

I would like to understand if I will need to pay taxes in Canada, considering the higher tax rates compared to the US, in the following scenarios:

- If I decide to travel to Vancouver almost every day. Also, will buying a rental property in the US affect this?
- If I come to Vancouver from Friday night to Monday morning, which would add up to over 180 days in the Canada.

Thank you for your assistance.

[nelsona]

Unless you actually stay in US, and have your spouse visit you, instead of you visiting her, you will be remain a CDn tax resident.

The number of days in each country is not really important, but you will never break Cdn tax residency, until your spouse moves to US, or you stop visiting Canada completely.

[Milind23]

Thank you for your kind response. Please correct me if my understanding is wrong:

- If I have a spouse living in Canada, I will be considered to have strong ties with Canada for tax residency.
- If I am living 180+ days in the US, I am considered a tax resident of the US.

In this case, I am a resident of both countries, so it will come down to the tiebreaker rules of the US-Canada tax treaty. According to the treaty, if I have a rental property investment in the US and not in Canada, then I will need to pay tax on my US earnings in the US and my Canadian earnings in Canada. In this situation, I won't have to file my US income in Canada as foreign income.

Can you help confirm if that's correct?

[nelsona]

Yes, it will come down to tie-breaker rules, however, with your spouse in Canada AND YOU VISITING HER REGULARLY, this tips the centre of vital interest clause significantly towards Canada.

Business dealings, and even a job in US, doesn't override this.

[Milind23]

Thank you, Nelsona, for your response. I somehow missed the notification of your previous reply.

Since the first condition in the tie-breaker rule states that an individual shall be deemed a resident of the Contracting State where they have a permanent home available to them:

If I remove myself from the rental agreement for our apartment in Canada and purchase a home in the US where I reside, would this satisfy the "permanent home" criterion and override the “vital interests” clause?

Thank you again for your insights!

[nelsona]

You would still have a "permanent home AVAILABLE" to you, proven by your constant returns there.

[Milind23]

If I primarily work and live in the U.S., visiting Canada only occasionally on weekends, and if she moves to the U.S. in, say, November, would that help establish my tax residency in the U.S. for the year, or would it remain in Canada for that year?

[nelsona]

Establishing tax residency in US is not the problem. You can basically file anyway you want in US when you a Cdn resident.

It is breaking Cdn residency that is your issue: and since you have a "home and spouse" in Canada, and you visit regularly, CRA will consider you a Cdn resident, making your US wages taxable in Canada. You will not satisfy the treaty definition of residence. You would simply be a commuter living in canada and working in US.

Only once your spouse moves to US (or, you completely stop visiting Canada, and have her visit you instead ) will you be able to claim Cdn non-residency. If she moves in November, that would be your (and her) departure date. If she moves earlier, that would be the departure date.