Are You Entitled to Receive the Canada Child Benefit (CCB)? ‘Tax Residence’ is Key, Plus How to Determine if You’re Tax Resident

Introduction – The Canada Child Benefit (“CCB”)

Where it applies, subsection 122.61(1) of the Income Tax Act entitles an “eligible individual” to the Canada Child Benefit (“CCB”). The CCB is defined as an overpayment to ensure it remains a tax-free payment to the recipient. Many provinces in Canada (including Ontario and British Columbia) offer provincial childcare benefits as well, and the rules that typically govern each follow directly from the federal provisions.

To qualify as an “eligible individual”, a number of specific conditions must be met by the recipient:

1. The taxpayer must file a notice in the prescribed form with the Canada Revenue Agency (“CRA”), and must file annual Canadian income-tax returns to receive and to continue receiving the benefit;
2. The taxpayer must reside with one or more “qualified dependants” (i.e. a child under the age of 18);
3. The taxpayer must be a tax resident of Canada (described in more detail below);
4. The taxpayer must not be or reside with a family member who is employed or acting on behalf of a foreign government while living in Canada; and
5. The taxpayer, or spouse/common-law partner, must be (i) a Canadian citizen, (ii) a permanent resident, (iii) a “protected person” (under the Immigration and Refugee Protection Act), (iv) a temporary resident who has lived in Canada continuously for more than 18 months, or (v) an individual registered or entitled to be registered under the Indian Act.

In the majority of cases for Canadian resident parents of minor children, satisfying these conditions will not present an issue, and it should be obvious whether the conditions are satisfied (i.e. filing tax returns with the CRA, having one or more children, maintaining citizenship or permanent resident status). The question of tax residence, however, is a purely legal question, and while a taxpayer may assume the condition is satisfied, that is not guaranteed. The following section will explore what it actually means to be a tax resident of Canada, and the various interlinked rules that contribute to determining whether a person is a tax resident.

This article will begin by briefly exploring the rules that pertain to tax residence in Canada. First, this article will explore the conditions where an individual may be considered a tax resident of Canada, either as “ordinarily resident” in Canada under common law, or as a “deemed resident”. Second, this article will consider the situations in which an individual may cease to be a tax resident of Canada, with or without the application of Canada’s tax treaties. Finally, this article will conclude with some pro tax tips concerning the CRA’s administrative practice.

Tax Residence in Canada

Residence for tax purposes can be distinguished from immigration status, because it is not an administrative status granted to a person by the Canadian government. A person can in fact be a tax resident of Canada without having any immigration status at all. Rather, an individual can be found resident in Canada:

1. where that taxpayer is “ordinarily resident” within the meaning of subsection 250(3) of the Income Tax Act; or
2. where that taxpayer is not otherwise ordinarily resident in Canada at any point in a given taxation year, that taxpayer is a “deemed resident” under paragraph 250(1)(a) of the Income Tax Act.

Defining “Ordinarily Resident” in Canada

Under subsection 250(3) of the Income Tax Act, an individual is viewed as a resident of Canada where that individual is “ordinarily resident” (i.e. a factual resident) in Canada. Canadian courts have determined that a person’s ordinary residence is “the place where in the settled routine of his life he [or she] regularly, normally or customarily lives.” Other relevant factors for determining somebody’s ordinary residence include a person’s:

1. past and present habits of life;
2. regularity and length of visits in the jurisdiction asserting residence;
3. ties within that jurisdiction;
4. ties elsewhere; and
5. permanence or otherwise of purposes of stay abroad.

The CRA has also published its own views in Income Tax Folio S5-F1-C1 (“Determining an Individual’s Residence Status”) as to what factors militate in favour of an individual being ordinarily resident in Canada. (While the CRA’s published views do not have force of law in Canada, they have been recognized by courts as fundamental tools for interpreting and applying Canada’s tax laws.)

Broadly speaking, when considering both common law and CRA’s published views, the most significant factors for establishing whether an individual is a Canadian factual resident will include:

• whether that individual has a “dwelling place” (i.e. a home or apartment) available for their long-term use in Canada;
• whether that individual has a spouse or common-law partner in Canada; and
• whether that individual has any dependants in Canada.

Other important secondary ties that can influence a finding that an individual is a Canadian factual resident or not include that individual’s personal property (i.e. furniture and vehicles), economic ties (i.e. bank accounts, investments, registered plans, credit cards and other debt), immigration status, government documents (i.e. health insurance, driver’s licence, passport), and social ties (i.e. memberships to professional organizations or unions, or recreational clubs or religious organizations) in Canada. If a person maintains enough identifiable ties to Canada (including primary and secondary ties) to suggest that Canada is where a person “regularly, normally, or customarily lives”, that person may be considered ordinarily resident in Canada. This remains a fact-specific determination for each person.

The “Deemed Residence” Rule

Paragraph 250(1)(a) of the Income Tax Act deems an individual to be a resident of Canada throughout a particular tax year if that person “sojourned” in Canada for 183 days or more in that year. This is often referred to as the “deemed residence” rule. The meaning of “sojourning” has been broadly interpreted to mean that the individual was “temporarily resident” in Canada. A commuter can be distinguished from a sojourner, in that a commuter is only present in Canada for purposes of travelling between destinations such as to and from work. A sojourner may stay in Canada, even casually or intermittently, but with some sense of permanence. Whether an individual is a sojourner is also fact-specific analysis.

It is worth acknowledging that an individual can only be deemed resident in Canada where that individual was not otherwise a factual resident of Canada, and so the factual residence test must be considered before the deemed residence rule when determining an individual’s status as a Canadian tax resident.

Ceasing to be a Resident of Canada for Tax Purposes

An individual may be viewed as a non-resident where that individual’s ties to Canada are minimal or reduced, such that Canada is no longer that person’s settled, normal or customary place of living. For a Canadian to “break” ordinary residence, that taxpayer will have to give up enough residence ties to Canada. Again, the ordinary residence rule is distinct from the deemed residence rule, and a person may remain an ordinary resident of Canada without spending 183 days in Canada in a given year. Ceasing to be a resident while spending less than 183 days in Canada is a question of fact that must be evaluated in the circumstances of the person in question.

An individual may also be deemed to be a non-resident under subsection 250(5) of the Income Tax Act because of a tax treaty. Canada has a number of bilateral tax treaties with other countries which provide rules to settle dual residence, or where a person is a tax resident of two countries at once. Most Canadian treaties follow the OECD Model Tax Convention, which provides a number of sequential tie-breaker rules to determine a person’s tax residence. Under this OECD Model, an individual is considered to be a resident in the jurisdiction:

1. in which that the individual has a permanent home available;
2. in the jurisdiction of that individual’s “centre of vital interests”;
3. in the jurisdiction of that individual’s “habitual abode”;
4. in the jurisdiction that individual is a citizen or national; and
5. where the above-tests remain inconclusive, whatever mutual conclusion that the competent authorities of each jurisdiction arrive at (that is, the Canada Revenue Agency and the other country’s tax authority will come to an agreement on the issue.)

To give effect to a tie-breaker ruling, subsection 250(5) of the Income Tax Act will deem a Canadian tax resident to be a non-resident as of the date that any bilateral treaty rules would find that person was not a resident of Canada. Where a Canadian tax resident is found to remain a Canadian tax resident pursuant to a tax treaty, that person’s status as a Canadian tax resident will remain untouched.

These rules are highly relevant for taxpayers who might travel to and from Canada frequently, or who might not principally reside with a child in a Canadian province. Remaining or ceasing to be a Canadian tax resident is not a question of intent, but of fact. As well, because entitlement to provincial child care benefits is typically determined on the same basis as the federal benefit, a person’s provincial residence status is also important. An individual who splits time between Ontario and British Columbia may be a resident of one province but not the other, and may claim provincial child care benefits in the wrong province out of ignorance. Any person looking to claim the federal CCB or a provincial child care benefit should consider their tax residence status carefully, and where there is any ambiguity, consult with an expert Canadian tax lawyer to ensure the necessary conditions are met.

If the CRA does audit and re-determine your entitlement to the CCB, then you are entitled to file a formal notice of objection to challenge the CRA’s decision. Subsection 165(1) of the Income Tax Act gives every taxpayer the right to object to a tax assessment or tax reassessment (subject to statutory time limits and procedural requirements), which will commence CRA’s administrative dispute-resolution process. A notice of redetermination for a CCB denial can be objected to under subsection 152(1.2) of the Income Tax Act, even though it is not a tax assessment or tax reassessment.

There are strict time limits on the right to object. Generally, a taxpayer must object within 90 days from the date on the CCB notice of redetermination. And in limited cases, a taxpayer may apply for a deadline extension within one year of the objection deadline. To obtain that extension, the taxpayer must demonstrate (amongst other things) that the taxpayer had a bone fide intention to file an objection within the 90-day deadline.

A taxpayer who fails to object or apply for an extension within the statutory deadlines has thereby abandoned the right to dispute the CRA’s CCB redetermination. While individual CRA agents may be sympathetic to a taxpayer’s case, those agents have no authority to overturn a CCB redetermination outside of the objection procedure. So to preserve your rights after a CCB redetermination, you should always file an objection with the assistance of an expert Canadian tax lawyer, and by the 90-day deadline.

Pro Tax Tip: Be Careful Leveraging CRA’s Tax Residence Resources

The CRA offers a number of tools to help diagnose if and when a person has become, or ceased to be, a tax resident of Canada. Specifically, the CRA has published Form NR73 “Determination of Residency Status (Leaving Canada)” and Form NR74 “Determination of Residency Status (entering Canada)”, which taxpayers can complete and submit to the CRA for review. Both forms ask a number of questions about residence ties to Canada and abroad, similar to the factors considered when determining ordinary residence. Following its review, the CRA will issue a non-binding opinion confirming whether the applicant has become, or ceased to be, a tax resident of Canada.

The NR73 and NR74 forms can, in some circumstances, be used by taxpayers to help determine whether that taxpayer is, or has ceased to be, a tax resident of Canada. However, neither form is necessary to answer that question, as tax residence is a question of law and not the opinion of the CRA. Furthermore, the CRA is not versed in foreign law, and cannot determine whether a person is a tax resident of another country. As a result, the CRA is not well-positioned to advise on the application of tax treaties, and the deemed non-residence rule.

The NR73 and NR74 forms should therefore be used sparsely and for specific, discrete purposes, where having the CRA confirm its opinion on the subject will help. To obtain a reliable and more robust opinion on tax residence, a person should instead engage an expert Canadian tax lawyer to explore the application of these rules. If necessary, that expert Canadian tax lawyer can identify if foreign tax counsel is required to advise on foreign tax residence status if a tax treaty is in play. If the circumstances suggest that filing a, NR73 or NR74 would be beneficial, that expert Canadian tax lawyer can also help to ensure that application will yield a predictable result from the CRA. Canadians receiving the CCB who are concerned about a prospective change in tax residence, or whether the CCB was incorrectly claimed on the basis of a change in tax residence status, ought to first engage an experienced Canadian tax lawyer for guidance.

FAQs:

What is the Canada Child Benefit (“CCB”)

Where it applies, subsection 122.61(1) of the Income Tax Act entitles an “eligible individual” to the Canada Child Benefit (“CCB”). The CCB is defined as an overpayment to ensure it remains a tax-free payment to the recipient. Many provinces in Canada (including Ontario and British Columbia) offer provincial childcare benefits as well, and the rules that typically govern each follow directly from the federal provisions. To qualify for the CCB, a taxpayer must satisfy a number of conditions, including (but not limited to) being a tax resident of Canada.

When could a Canadian taxpayer “emigrate” (i.e. depart) from Canada for tax purposes?

The concept of residence can be distinguished from citizenship or nationality, in that it consists of an individual’s various ties to Canada as opposed to that individual’s Canadian administrative (i.e. immigration) status. A Canadian taxpayer can become a non-resident for tax purposes where that taxpayer ceases to be a factual resident of Canada, such that Canada is no longer the individual’s settled, normal or customary place of living. As well, under subsection 250(5), where a Canadian tax resident is resident in both Canada and another country, and under an applicable bilateral tax treaty that individual is deemed a resident of the other country and not Canada, then that individual is deemed to be a non-resident of Canada as of that day the treaty applied.

What is Form NR73 and Form NR74?

Form NR73 “Determination of Residency Status (Leaving Canada)” is a form published by the CRA which can be used to request the CRA’s opinion on whether a person has departed Canada (i.e. emigrated) for tax purposes. In contrast, Form NR74 “Determination of Residency Status (entering Canada)” can be used to request the CRA’s opinion on whether a person has entered Canada (i.e. immigrated) for tax purposes. While they may be useful in limited circumstances, these opinions are non-binding. A person’s status as a tax resident is a question of law, not the CRA’s opinion, and without clear guidance from an expert Canadian tax lawyer, it is possible the opinion provided by the CRA could be incorrect or misleading, especially where a tax treaty might apply.

I claimed CCB while living part of the year in Dubai. The CRA is telling me that I have to repay my CCB amounts. What can I do?

You can file a notice of objection concerning a redetermination of CCB entitlement. Generally, a taxpayer can object within 90 days from the date of the notice of redetermination. While individual CRA agents may be sympathetic to a taxpayer’s case, those agents have no authority to overturn a CCB redetermination, and an objection should be filed with the assistance of an expert Canadian tax lawyer within the 90-day deadline to preserve your rights.

I am a Canadian citizen but claimed CCB while living in the US. I now understand that I was not eligible for CCB. What can I do?

First, you may still be a tax resident of Canada even while living in the US. You should engage an expert Canadian tax lawyer to review your entitlement, and if you were ineligible, consider filing a voluntary-disclosure application through the CRA’s Voluntary Disclosures Program to correct that non-compliance. If the CRA has issued a notice of redetermination for your CCB, you should engage an expert Canadian tax lawyer to determine if a notice of objection can and should be filed to challenge that decision.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.