Taxation law

The CRA Provides Guidance on Determining Tax Residency in the Context of COVID-19

May 22nd, 2020

By Hyacinthe Huguet

On May 20th, the CRA published a “Guidance on international income tax issues raised by the COVID-19 crisis” (see link here) to provide clarity around international tax issues affected by COVID-19 such as tax residency, the creation of permanent establishments, and the taxation of employment income earned by non-residents in Canada.

On the issue of tax residency, the CRA seeks to provide relief to individuals or corporations whose tax residency could be affected by travel restrictions having been imposed by Canada or another country. Note that these measures echo those adopted by the IRS (as was reported in this article) and by other countries around the world.

Pursuant to subsection 250(1) of the Income Tax Act (the “ITA”), a person who sojourns 183 days or more in a taxation year in Canada is deemed to be a resident of Canada and, therefore, potentially liable for tax in Canada. To avoid deeming individuals who have extended their stay in Canada because of travel restrictions, the CRA will exclude the days spent in Canada solely because of travel restrictions from the 183-day count.

For corporations, the CRA states that it will not consider the place of the effective management to be Canada simply because board members participated to meetings of the board while present in Canada because of travel restrictions. Further, the CRA believes many income tax treaties will decide the issue of tax residency for those corporations that may have become dual resident, for example, under treaty provisions deeming a corporation to be a resident of the country in which it was incorporated. Finally, the CRA notes that the location of board meetings is but one of many factors that must be considered to determine the residency of a corporation, and, therefore, should not be determinative on its own.

Note that the measures contained in these guidelines are, for the moment, set to apply from March 16 to June 29, 2020, and that the CRA will assess whether the residency of individuals was effectively affected by travel restrictions on a case-by-case basis.

In short, these measures should provide clarity to taxpayers, be they individuals or corporations, who may have otherwise had to deal with concerns and uncertainty regarding their tax residency and tax liability, in addition to the toll that the current crisis currently exerts on individuals’ daily lives and businesses’ operations.

Further articles will address other points discussed in the CRA’s guidance on international tax issues resulting from COVID-19. 

If you have any questions regarding the foregoing, feel free to contact the author or your tax attorney.