Determining Province of Residence for Tax Purposes

Author: Beth Porter, CA, CFP, Partner, Noseworthy & Chapman Chartered Accountants

While the Canada Revenue Agency (CRA) regularly reviews residency with respect to individuals being residents or non-residents of Canada, they also conduct reviews with respect to provincial residency where it is not clearly determinable. Under the tax laws of Canada, generally speaking, an individual pays tax based on where they resided on December 31^st of the year. There are some exceptions to this, the most common being business income.

Where an individual has residences in more than one province, there is the debate as to which province the person resides in for taxation purposes. For example, a person may live with their family in one province and have a second residence in another province in which they work or are attending school for an extended period of time. Typically, the temptation arises to make the argument that, for tax purposes, a person is resident in the province having lower tax rates. However, no different than when determining in which country a person truly resides, a person's province of residency is also determined by looking at certain criteria:

Firstly, a person is considered to be resident in the province where they have the most significant residential ties, for example where they have a permanent home available to them or where their spouse and children reside.
Secondly, where residency cannot be determined based on the first test, there are a number of secondary ties that must be considered collectively, such as:

location of personal property (clothing, furniture, automobiles);
social ties, such as memberships in religious and recreational organizations;
economic ties, such as bank accounts, investments, etc.;
provincial medical insurance coverage;
provincial driver's license and motor vehicle registration;
location of seasonal dwellings; and
memberships in professional organizations.

It is important to consider the above criteria if a person potentially could be considered a resident in more than one province. Where an individual has filed incorrectly, the CRA will reassess, along with penalties and interest if applicable in the circumstances.

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