Tax Residence Planning
Not only is December an important month for tax loss selling, it’s also a critical month for tax residence planning.
If you are contemplating an interprovincial relocation for work, the timing of your move could either cost or save you a whack of tax depending on the difference between the tax rates in your current vs. future province of residence.
For example, in an extreme situation, a move from our highest taxed province of Nova Scotia to our lowest tax province of Alberta would best be done before Dec. 31, with the resultant tax savings as high as 11% for 2010 income over $150,000.
That’s because provincial residency is based on where you lived on the last day of the year. But don’t be fooled by that seemingly innocuous question on page one of your personal tax return that asks: “Enter your province or territory of residence on Dec. 31, 2010.”
Simply checking into a Calgary hotel to celebrate New Year’s, won’t fly in the eyes of the tax man when provincial residency is in question. That’s because the determination of provincial residency looks to the province where you have the “most significant residential ties.”
Significant residential ties include the location of your home, your spouse or partner and family. Secondary ties can include: maintaining a recreational membership in the province, using that province’s hospital or medical insurance coverage, continuing to drive a vehicle registered in the province and holding a driver’s license from that province.
The Canada Revenue Agency has stated, however, that it is indeed possible for someone to be resident in more than one province.
The CRA will look at all the facts to determine in which province you have the most significant residential ties. If that province can’t be determined, then your province of residence would be the province in which you have the most secondary residential ties, as discussed above.
What may be of some assistance is CRA Form NR73, “Determination of Residency Status,” which can be used by Canadians who are leaving Canada to assist them in determining whether they have appropriately severed their ties to Canada and are properly considered a non-resident of Canada for tax purposes.
While this form is not meant to be used for provincial residency determination, pages two and three of the form provide a checklist of questions that may guide you in determining where most of your provincial residential ties lie.
If you still have trouble determining your provincial residency, the CRA requests you contact your local Tax Services Office.