Personal Income Tax Return: Important Considerations
In this series of articles, we will discuss important considerations when filing a personal income tax return, with a view to tax planning. In this part I, we will discuss whether you have an obligation to file a T1 Income Tax Return with the CRA in the first place.
Do I Have to File a T1 General Tax Form (“T1”)?
A T1 Income Tax Return is completed to report your personal income. If you have earned income and are liable to pay tax under the Income Tax Act, you have realized a taxable capital gain, or you have disposed of capital property, you are obligated to file a T1 Income Tax Return.
That said, the single most determinative factor of your tax liability is whether you are considered a resident of Canada. As a Canadian resident, you will incur a tax liability on your worldwide income as opposed to being taxed only on Canadian-source income.
Am I a Resident of Canada?
As the Income Tax Act only describes a resident as being an ordinarily resident of Canada, the courts have developed the following guiding principles to assist you in determining whether you ordinarily reside in Canada:
- Determining residency is a question of fact that requires consideration of all factors;
- An individual can be resident of more than one country at a time;
- An individual must be a resident of at least one country;
- The length of time an individual spends in a location is only one factor to consider;
- Owning and maintaining a home by an individual or family member is only one factor to consider, however this is one of the most important factors;
- An individual’s social and economic ties are important factors; and
- Other factors to consider include:
- Habits of life; purpose of stay; membership with religious organization; motor vehicle registration; holding credit cards; newspaper subscription; safety deposit box or post office box rental; life insurance through company; telephone listing; business card address; bank accounts; pension plan membership; burial plot; location of will preparation; filing income tax return; vacation property; employment; and maintenance or storage of personal belongings.
As there are many factors to consider when determining your residency, it is important to note that the CRA takes the position that an individual is generally a resident of Canada unless she severs all significant residential ties with Canada.
Have I Severed Ties with Canada?
The most important residential ties you should be mindful of is the location of your dwelling and the location of your spouse/common law partner or dependent. If these are in Canada you will likely be considered a Canadian resident. Furthermore, secondary residential ties that you should consider include:
- Personal belonging in Canada;
- Social and economic ties to Canada;
- Medical insurance coverage in a province/territory;
- Canadian driver’s license;
- Seasonal dwelling;
- Canadian passport; and
- Canadian union memberships.
Caution – Consult your Tax Advisor
If you are planning to leave Canada for an extended period or are in the process of emigrating from or immigrating to Canada, it is important to consult your tax advisor or lawyer to assist you in determining your residency status and resulting tax liability. If you have a tax liability, you must file a T1 Income Tax Return.
-Julian Franch, Associate Lawyer
© Kalfa Law 2018
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.