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I know a young person who is planning to move from Canada to another country to pursue a graduate degree. When he moves, he may or may not be considered a resident of Canada for tax purposes. He does not own property, has no children, and is not married, so the "significant" ties don't apply. The secondary ties are under his control: keeping possessions with family vs selling them, keeping bank accounts or credit cards open vs closing them and opening new ones in the other country, renewing his drivers license when it expires, and so on.

Given that this is in many ways a choice, how does one decide which way to choose? Are there tax advantages to being a Canadian resident? Disadvantages? He is a citizen, so immigration advantages don't apply.

Relevant information: the country in question has a tax treaty with Canada. This prevents double taxation. Also, that tax treaty includes this paragraph:

Payments which a student, apprentice or business trainee who is, or was immediately before visiting one of the Contracting States, a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training, receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments are made to him from sources outside that State.

I believe that says he will not be taxed in the new country. If so, then I think that means he wants to be a non-resident of Canada, because non-residents only pay Canadian tax on income earned in Canada, but I find all this a little hard to interpret.

  • Is he likely to inherit any money while he is in Canada? – B Chin Mar 25 '17 at 22:55
  • We all certainly hope not! In the unlikely event he loses a relative before moving, how would that influence a choice around residency? – Kate Gregory Mar 25 '17 at 23:02
  • He won't be allowed to keep OHIP. My strong general impression from moving the other way (USA -> Canada) is that you want to file in as few countries as possible. At least in the case of US citizens, the tax treaty gives very imperfect protection against double taxation for a number of reasons. If he acquires any Canadian mutual funds or Canadian stocks with an operating loss then he'll likely run afoul of the US tax on PFICs. – B Chin Mar 26 '17 at 2:07
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A couple of thoughts.

Tax benefits are the usual reasons to decide on one residency or another. International tax law is complex, and it's probably best to consult a professional. Certainly without knowing which the other country is I would not want to hazard a guess. If he is really not going to be taxed on the other country, residing there would seem sensible. But...

In Canada residency for tax purposes is established for an entire year. If you are resident for more than six months your salary for the year is taxable. Conversely if you are present for less than six months you are not taxable. (This may have changed - it's been twenty years since I did this.)

The other issue is healthcare. If you are not resident in Ontario you are not eligible for free healthcare, I believe. He might have to purchase supplemental insurance if he returns occasionally.

  • The residency for health coverage is far less optional than for taxes. While possessions, property, bank accounts etc in Canada may retain residency for tax purposes, that won't get you health coverage. Once he has lived abroad for 6 months, OHIP is not going to cover him no matter what the CRA feels about his residency status. But thanks for the reminder. He'll need travel insurance as well as plane tickets to visit home. – Kate Gregory Mar 26 '17 at 11:36

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