,g
g
g
g
g
g
g
g
CHAPTER 1 g g
Introduction g
g
g
Solutiong1:gIdentifygsectiongofgthegActg
g
Thegfollowinggsummarygisgdiscussedgingmoregdetailgbelow:g
Caseg Topicg Partg Divisiong Subdivisiong Provisiong
(A) Persong..................................................... g XVIIg —g —g subsectiong248(1)g
(B) Donationgbygindividual............................ g Ig Eg ag subsectiong118.1(3)g
(C) Balance-duegday...................................... g XVIIg —g —g subsectiong248(1)g
(D) Lifeginsurancegpremiums......................... g Ig Bg ag subsectiong6(4)g
(E) Capitalgdividendg...................................... g Ig Bg hg subsectiong83(2)g
(F) Incomegtaxginstalmentsgforgindividualg.....g Ig Ig —g subsectiong156(1)g
(G) Qualifiedgsmallgbusinessgcorporationgshareg Ig Cg —g subsectiong110.6(1)g
Reg.gPartgII,g
(H) Informationgreturngforgdividendsg.............g —g —g —g
paragraphg201(1)(a)g
(I) Definitiongofgtestamentarygtrust.g.............g Ig Bg kg subsectiong108(1)g
(J) Employeegloan.g....................................... g Ig Bg fg subsectiong80.4(1)g
(K) Dispositiongofgnon-depreciablegcapitalg g g g g
property................................................... g XVIIg —g —g subsectiong248(1)g
(L) RRSPgadministrationgfees.g......................g Ig Bg bg paragraphg18(1)(u)g
(M) Limitgongdeductiblegexpenses..................g Ig Bg fg sectiong67g
TaxablegdividendsgreceivedgbygCanadian
(N) corporationg.............................................. g
g
Ig Cg —g subsectiong112(1)g
(O) RRSPgexcessgcontributionsg.....................g X.Ig —g —g subsectiong204.1(1)g
g
(A) Persong—
gPartgXVII,gsubsectiong248(1):gThegtermgisgusedgthroughoutgthegAct,gsogitgisglikelygtogbegfoundgingthegin
terpretationgsection.gThegdefinitiongisgsimilargtogmanygingthegActgingthatgitgdoesgnotgtellgyougexactlygwh
atgagpersongis;gitgtellsgyougwhatgagpersongincludes.g
(B) Donationgbygangindividualg—
gPartgI,gDivisiongE,gSubdivisionga,gsubsectiong118.1(3):gTaxgcreditsgaregfoundgingDivisiongE.gCreditsgth
atgaregparticulargtogindividualsgaregfoundgingSubdivisiongagofgDivisiongE.g
(C) Balance-duegdayg—
gPartgXVII,gsubsectiong248(1):gThegtermghasgapplicationgtogallgtaxgfilersgand,gtherefore,gshouldgbegfoun
dgingtheginterpretationgsection.gHowever,gthegtermghasgagdifferentgmeaninggdependinggongthegtypegofgta
xgfiler.gForgtrustsgandgindividuals,gspecificgtiminggisgprovided.gForgcorporations,gthegprovisiongrefersgto
gsectiong157.g
(D) Groupgtermglifeginsurancegpremiumsgpaidgbygemployerg—
gPartgI,gDivisiongB,gSubdivisionga,gsubsectiong6(4):gPaymentsgmadegongbehalfgofgangemployeegbygange
mployerglikelygresultgingincomegfromgemployment.gSubdivisiongagincludesgthegprovisionsgforgcalculati
nggincomegfromgemployment.g
(E)Capitalgdividendg—
gPartgXVII,gsubsectiong248(1):gThegtermgisgfoundgingsubsectiong248(1)gbutgagdefinitiongisgnotgactuallyg
provided,gonlygagreference.gItgrefersgtoganothergsectiong—
gPartgI,gDivisiongB,gSubdivisiongh,gsubsectiong83(2):gCapitalgdividendsgaregtax-
, freegdistributionsgbygagcorporationgtogitsgshareholders,gsogthegprovisiongisglikelygtogbegfoundgingPartgI,g
DivisiongB,gSubdivisionghgthatgdealsgwithgcorporationsgandgtheirgshareholders.g
(F) Incomegtaxginstalmentsgforgangindividualg—
gPartgI,gDivisiongI,gsubsectiong156(1):gTheginformationgthatgisgrequiredgdealsgwithgpaymentsgtogthegCR
A;gthereforegthisginformationgshouldgbegfoundgingDivisiongIgdealinggwithgreturns,gassessments,gpaymen
tgandgappeals.g[Somegstudentsgmaygalsogidentifygsubsectiong155(1)gasgdealinggwithgfarmersgandgfisher
men.]g
(G) Qualifiedgsmallgbusinessgcorporationgshareg—
gPartgI,gDivisiongC,gsubsectiong110.6(1):gThegcapitalggainsgdeductiongthatgisgavailablegforgqualifiedgsma
llgbusinessgcorporationgsharesgisgagdeductiongthatgisgavailablegingcomputinggtaxablegincomegandgisgthere
foregfoundgingDivisiongC.g
g g
g
g
g
g
g
2g IntroductiongtogFederalgIncomegTaxationgingCanadag
(H) Filingginformationgreturngforgdividendsgpaidg—
gRegulationsgPartgII,gsubsectiong201(1):gThegRegulationsgprovidegimportantgdetailgregardinggagnumbergofgtheginco
megtaxgrules.gIngordergtogensuregthatgindividualsgaregadvisedgofgtheginformationgrequiredgtogbegreportedgongtheirgpe
rsonalgtaxgreturnsg(andgtogallowgthegCRAgtogensuregthatgthegincomegisgreported),gcorporationsgaregrequiredgtogfilegs
lipsgsuchgasgT5sgforgdividendsgpaid.g
(I) Testamentarygtrustg—
gPartgI,gDivisiongB,gSubdivisiongk,gsubsectiong108(1):gThegphrasegdescribesgagtrustgsogitgisglikelygthatgthegdefinitio
ngwillgbegfoundgingSubdivisiongkgdealinggwithgtrusts.gSectiong108gcontainsgdefinitionsgforgthegsubdivision.g
(J) Interest-freegloangbenefitg—
gPartgI,gDivisiongB,gSubdivisiongf,gsubsectiong80.4(1):gSincegthegamountgrelatesgtogangemployee,gitgmightgbegexpec
tedgthatgthegprovisiongwouldgbegfoundgingsectiong6g(ingfactgthegprovisiongthatgrequiresgangincomeginclusiongisgfoun
dgingsubsectiong6(9)).gHowever,gthegactualgcalculationgofgthegamountgofgincomegisgfoundgingSubdivisiongfgwhichgc
ontainsgrulesgrelatedgtogthegcalculationgofgincome.g
(K) Dispositiongofgnon-depreciablegcapitalgpropertyg—
gPartgXVII,gsubsectiong248(1):gThegtermg“disposition”gisgusedgthroughoutgthegAct,gsogitgisglikelygtogbegfoundgingthi
sgdefinitiongsection.g
(L) LimitgongdeductiongofgRRSPgadministrationgfeesg—
gPartgI,gDivisiongB,gSubdivisiongb,gparagraphg18(1)(u):gAtgonegtime,gwhengthegfeesgweregdeductible,gtheygweregco
nsideredgagcarryinggchargegdeductiblegingcomputinggincomegfromgproperty.gTherefore,gthegrestrictiongongthegdedu
ctiongisgfoundgingsectiong18gwhichgprovidesgaglistgofgitemsgthatgaregspecificallygnotgdeductiblegingcomputingginco
megfromgbusinessgorgproperty.g
(M) Limitgongdeductiblegexpensesg—
gPartgI,gDivisiongB,gSubdivisiongf,gsectiong67:gThegrestrictiongongthegamountgofgdeductiblegexpensesgappliesgthrou
ghoutgthegAct.gTherefore,gthegprovisiongisgfoundginggeneralgrulesgforgcomputinggincomegthatgaregfoundgingSubdivi
siongf.g
(N) Corporategdividendgdeductiong—
gPartgI,gDivisiongC,gsubsectiong112(1):gThegconceptgdealsgwithgagdeductiongthatgisgavailablegtogagcorporation.gItgmi
ghtgbegexpectedgtogbegfoundgingDivisiongB,gSubdivisiongbgdealinggwithgthegcalculationgofgincomegfromgproperty.g
However,gingthisgcase,gthegdeductiongisgnotgconsideredgtogreducegincomegfromgpropertygbutgisgaggeneralgdeduction
gavailablegingcomputinggtaxablegincome.g
(O) ExcessgRRSPgcontributionsg—
gPartgX.I,gsubsectiong204.1(1):gThisgisgagspecialgtaxgthatgisgfoundgingthegActgandgappliesgwhengangindividualghasgco
ntributedgmoregtogangRRSPgthangisgallowedgbygthegAct.gIngthisgcase,gthegspecialgtaxgisgintendedgtogdiscouragegpeop
legfromgtakinggadvantagegofgthegbenefitsgofgangRRSPgbeyondgthosegthatgaregprovidedgforgingthegrules.g
g
g
g
g
g
g
,SolutionsgtogChapterg1gAssignmentgProblemsg 3g
Solutiong2:gDeterminegIncomegUsinggOrderinggRulesg[Notegtoginstructors:gChangesgt
ogthisgproblemgfromgpriorgyeargincludegpropertygincomegchangedgfromg$1,350gtog$1,
650gandgrentalgincomegfromg$975gtog$2,500]g
DivisiongBg—gSec.g3g
g g
Par.g3 Subdivisiongag g
$g $g98,400g
(a)g Sec.g5,g6,g7,g8g Employmentgincome...................................................... g
g g g
g g
Subdivisiongbg
g
Sec.g9g Propertygincome............................................................... g $gg1,650gg
g
Sec.g9g Rentalgpropertygincome.................................................. g g 2,500g
Subdivisiongd:gMiscellaneousgsourcesg 4,150g
Par.g56(1)(a)g Employmentginsurance..................................................... g $g 600gg
Par.g56(1)(a)g Retiringgallowanceg........................................................... g g 800g g 1,400g
g g g
$103,
950g
Par.g3 Subdivisiongc:gNetgtaxablegcapitalggainsg
(b)g
Par.g38g Taxablegcapitalggainsg(netgofgallowablegcapitalglosses).....g g 100g
g g
$104,0
50g
Par.g3 Subdivisionge:gMiscellaneousgdeductionsg
(c)g
Sec.g62g Movinggexpense............................................................... g $gg1,70 g
Sec.g63g 0g g
gg(4,56
Childgcaregexpenseg........................................................... gCPPgen 1,800g 1)g
hancedgandgadditionalgdeductiong gg
g1,074g
$g99,489g
Par.g3(d)g Lossesgfromgnon-capitalgsources:g
Sec.g9g Businessgloss................................................................ g g (700)g
DivisiongBgincomeg....................................................................................... g $g98,789g
DivisiongC:gDeductionsg—gSecg111.1g
Par.g111(1)(a)g Non-capitalglossesg................................................................................ gg (600)g
Taxablegincomeg............................................................................................................................. ...........g$g98,189g
DivisiongE:gBasicgfederalgtaxg—gSec.g118.92g
Taxgbeforegcreditsg....................................................................................................................... g $g16,973g
Sec.g118g Personalgcredits..................................................................................................... g (2,419)g
Sec.g118.7g CPPgcontributiongcreditg....................................................................................... g (503)g
Sec.g118.7g EIgpremiumgcreditg................................................................................................g (162)g
Ssec.g118(10)gCanadagEmploymentgtaxgcreditg............................................................................ g (221)g
Sec.g118.2g Medicalgexpensegcreditg......................................................................................... g (9)g
Sec.g118.1g Charitablegdonationsgcreditg........................................................................................ gg (26)g
Basicgfederalgtax.......................................................................................................................... g $g13,633g
,g g g
4g IntroductiongtogFederalgIncomegTaxationgingCanadag
Solutiong3:gIdentifygandgDefinegWords/TermsgFoundgingSectiong2g
Wordsgandgtermsgfoundgingsectiong2g
(A)gDivisiongAgofgPartgIgofgthegActgconsistsgofgsectiong2gofgthegAct.gSectiong2gconsistsgofgthreegsubsections.g
Subsectiong2(1):g
“taxablegincome”g—gThisgisgdefinedgingsubsectiong2(2).g
“taxationgyear”g—
gSubsectiong249(1)gcontainsgthegdefinitiongofgagtaxationgyear.gForgcorporations,gthegtaxationgyeargisgthegfiscalgp
eriodgofgthegcorporation;gforgindividuals,gthegtaxationgyeargisgthegcalendargyear.g
“fiscalgperiod”g—gThisgisgalsogagdefinedgterm,gfoundgingsubsectiong249.1(1).g
“corporation”g—
gThisgwordgisgpartgofgagdefinedgtermgingsubsectiong248(1),g“corporationgincorporatedgingCanada”.g
“individual”g—
gSubsectiong248(1)gdefinesgindividualgasgagperson,gothergthangagcorporation,g“person”g—
gThisgisgalsogdefinedgingsubsectiong248(1).gThisgisgexpandedgbelow.g
“calendargyear”g—
gThisgisgnotgdefinedgingthegAct.gHowever,gthegInterpretationgActgdefinesgthegtermgingparagraphg37(1)(a)gtogmea
ngagperiodgofgtwelvegconsecutivegmonthsgcommencinggongJanuaryg1.g
“person”g—
gThegdefinitiongofgpersongisgfoundgingsubsectiong248(1).gSectiong248gisganginterpretationgsectiongandgmanygof
gthegwordsgandgtermsgusedgingthegAct,gwhichgrequiregdefinition,garegfoundgingthisgsection.gPersongisgdefinedgt
ogincludeganygbodygcorporategandgpolitic,gandgthegheirs,gexecutors,gadministratorsgorgotherglegalgrepresentati
vesgofgsuchgbody.g
“resident”g—
gAlthoughgthegActgincludesgagdefinitiongofgdeemedgresidentsg(subsectionsg250(1)gandg(4)),gthegwordg“resident
”gisgnotgitselfgdefinedgingthegAct.gCanadiangresidentsgaregtaxedgongtheirgworldwidegincome.gAsgthisgtermgisgfu
ndamentalgtogestablishinggagliabilitygforgCanadiangtax,gthereghavegbeengmanygcourtgcasesgcentredgongthegissue
gofgresidency.gThegcommonglawgprinciplesgwhichghavegevolvedgfromgthesegcasesgaregthegbasisgforgtheginterpre
tationgofgthisgword.gResidencygisgmoregfullygdiscussedgingChapterg2.g
“Canada”g—
gSectiong255gdefinesgCanadagtogincludegcertaingseagbedsgadjacentgtogthegcoasts,gasgwellgasgthegairspacegabovegt
heggeographicgboundariesgofgCanada.g
Subsectiong2(2):g
Asgmentionedgabove,gsubsectiong2(2)gisgitselfgagdefinition.gThisgsubsectiongisgforgthegpurposegofgdefiningg
“taxablegincome.”g
“taxpayer”gisgfoundgingsubsectiong248(1).gThisgisganygperson,gwhethergorgnotgliablegtogpaygtax.g
“incomegforgthegyear”g—
gSectiong3gcontainsgthegblueprintgforgthegcalculationgofgincome.gThegtermg“income,”ghowever,gisgnotgdefined.
gSectiong3gstates:g“ThegincomegofgagtaxpayergforgagtaxationgyeargforgthegpurposesgofgthisgPartgisghisgincomegde
terminedgbygthegfollowinggrulesg...”gIngordergtogdeterminegincomegundergsectiong3,goneghasgtogfirstgknowgwha
tgincomegis.gAsgincomegisgnotgdefined,gwegagaingmustgturngtogjurisprudencegandgcommonglanguage.gAgain,gth
eregaregnumerousgcourtgcasesgovergthegissuegofgwhatgconstitutesgincome.g
Subsectiong2(3):g
“employed”g—gSubsectiong248(1)gdefinesgthisgwordgasgperforminggthegdutiesgofgangofficegorgemployment.g
“business”g—
gSubsectiong248(1)gdefinesgthisgwordgtogincludegagprofession,gcalling,gtrade,gmanufacture,gorgundertakinggofga
nygkindgwhatever,gandgangadventuregorgconcerngingthegnaturegofgtrade.gThegdefinitiongexcludesgangofficegorge
mployment.g
“carryinggongagbusinessgingCanada”g—
gSectiong253gprovidesgangextendedgmeaninggofgthisgterm,gasgitgappliesgtognonresidents.gThisgprovidesgagnumb
ergofgcriteriagtogexpandgwhengagbusinessgwillgbegconsideredgtogbegconductedgingCanada.gHowever,gthegtermg“c
arryinggongagbusiness”gisgnot,gitself,gdefined.gTherefore,galthoughgweghavegangextendedgmeaninggofgthisgtermg
, legislatedgbygthegAct,gwegwillgnotgfindgaglegislatedgdefinitiongofgthegtermgitself.gAgain,gthereghavegbeengnume
rousgcasesgdisputinggwhethergagbusinessgwasgcarriedgon.g
“disposed”g—
gAlthoughgthegtermgdisposed gisgnotgitselfgdefined,g“disposition”gisgdefinedgingsubsectiong248(1)gtogbe,gingpara
graphg(a),ganygeventgorgtransactiongwhichgentitlesgthegtaxpayergtog“proceedsgofgdisposition.”g“Proceedsgofgdis
position”gis,gitself,gagdefinedgtermgfoundgingsubsectiong13(21)gandgsectiong54.g
“taxablegCanadiangproperty”g—
gThisgisgdefinedgingsubsectiong248(1)gandgisgquitegaglengthygdefinition.gTaxablegCanadiangpropertygincludes,g
amonggothergitems,grealgpropertygsituatedgingCanada,gsharesgofgprivategCanadiangcompanies,gandgcertaingpart
nershipginterestsgandgtrustginterestsgwhichgderivegtheirgvaluegprincipallygfromgthesegformergtwogtypesgofgprop
erty.g
“taxablegincomegearnedgingCanada”g—
gSubsectiong248(1)gdefinesgthisgtermgtogmeangtaxablegincomegdeterminedgingaccordancegwithgDivisiongDgofgPa
rtgI,gbutgingnogcasegcangthisgevergbeglessgthangnil.g
SolutionsgtogChapterg1gAssignmentgProblemsg 5g
g
Agreviewgofgsectiong2gclearlygemphasizesgthegimportancegofgunderstandinggthegtermsgusedgthroughoutgthegAct.
gIngmanygexamples,gthegActgwillgexpandgupongtermsgorgprovidegcomputationalgrulesgforgcertaingterms,gbutgdoesgnotg
extendgtogprovidinggagstatutorygdefinitiongofgthegtermgitself.gThisgisgonegofgmanygreasonsgwhyginterpretationgofgtheg
statutegremains,gatgtimes,gangimprecisegpractice.gItgalsogdemonstratesgthat,gwhilegthegActgisgthegcornerstonegforgthegt
axationgsystem,gitgcannotgbegstudiedgingisolationgasgitgdrawsgmeaninggfromgothergexternalgsources.g
g
g
g
Componentsgofgsubsectiong2(3)g
Subsectiong2(3),glikegsubsectiong2(1),gisgag“charginggprovision”,gbecausegitgchargesgsomeonegwithgthegresponsibilit
ygtogpaygagtax.g
g
g
Componentsgofgsubsectiong2(3)g
g
(i) thegpersongwhogisgthegsubjectgofgthegprovisiong
g
• "agpersongwhogisgnotgtaxablegundergsubsectiong(1)",gi.e.,gagpersongwhogisgnotgresidentgingCanadag(i.e
.,gagnon-resident)g
g
g
(ii) thegactivity,geventgorgconditiongthatgmustgbegmetgforgthegprovisiongtogapplyg
g
• agpersong
• wasgemployedgingCanadag
• carriedgongbusinessgingCanadagorg
• disposedgofgtaxablegCanadiangpropertyg
g
g
• notegthegusegofgthegwordg"or"gingtheglistgofgthreegactivitiesg
g
g
(iii) thegconsequencesgofgthegactivitygorgeventgtogthegpersongwhogisgthegsubjectgofgthegprovisiong
g
• "angincomegtaxgshallgbegpaidg...gongthegperson'sgtaxablegincomegearnedgingCanadagforgthegyearg..."g
g
g
• notegthegusegofgthegwordg"shall",gindicatinggagmandatorygpaymentg
g
g
(iv) thegtimeframegforgthegapplicationgofgthegprovisiong
g
• incomegisgearnedg
g
• atganygtimegingthegyeargorgagpreviousgyearg
g
g
g
g
g
g
CHAPTER 2 g g
, Liability for Tax g g g
g
Solutiong1:gIndividualgresidencyg—gMulti-Partg
1. Gathergallgthegfactsgleadinggupgto,gduring,gandgaftergthegmove.g
2. Developgyourgbestgargumentsgforgbothgresidentgandgnon-residentgstatus.gBegbalancedgingyourganalysis.g
3. Analyzegthegstrengthsgandgweaknessesgofgyourgargumentsgbygevaluatinggthegfactsgrathergthangsimplygclass
ifyinggorglistinggthegfacts.g
4. Arrivegatgagconclusiongofgresident,gnon-resident,gorgdeemedgresidentgconsistentgwithgyourganalysis.g
5. Ifgtheregisgagchangegingresidencygstatus,gthengdeterminegthegdategongwhichgthatgchangegmostglikelygtookgpl
ace.gIngthegyeargofgchangegthegindividualgwillgbegagpart-
yeargresident,gi.e.,gresidentgforgpartgofgthegyeargandgnon-residentgforgpartgofgthegyear.g
6. Ifgyourgconclusiongisgnon-
resident,gthengdidgthegindividualgsojourngingCanadagforg183gdaysgorgmoregwhilegagnon-resident?g
7. Ifgtheregisgagchangegingresidencygstatus,gthengdetermineghowgthegindividualgwillgpaygtax:g
a. beforegthegdategongwhichgtheirgresidencygchanged,g
b. aftergthegdategongwhichgtheirgresidencygchanged,gandg
c. forgthegyeargingwhichgtheirgresidencygchanged.g
g
(a) AnthonygandghisgwifegbothgmovedgtogCanadagthisgyeargandghavegindicatedgangintentiongtogstaygpermanent
ly.gWegdon’tghaveganyginformationgonghowgtheygcutgtheirgtiesgwithgtheirghomegcountrygorghowgtheygestabli
shedgtheirgtiesgingCanada.gWegalsogdon’tghaveganyginformationgongtheirgimmigrationgstatus.g
AssuminggAnthonyghasgmadegagfreshgstartgingCanadagthisgyear,ghegwillgbegconsideredgtoghavegbecomegagr
esidentgingthisgyear.gWhileghisgwifegandgchildrengmovedgongDecemberg15th,ghegwillglikelygbegconsidered
gtoghavegbecomegagresidentgongthegearliergdate.gHisgwifegandgchildrengwillgbecomegresidentsgongDecemb
erg15th.g
BecausegAnthonyghadgagchangegingresidencygingthegyear,gthegnextgstepgisgtogdeterminegwhenghisgcleangbr
eak/freshgstartgtookgplace.gIngthisgcasegtheregisglimitedginformationgsogthegobviousgchoicegisgMarchg1st.g
AsgofgMarchg1,gthisgyear,ghegwillgbegtaxedgingCanadagonghisgworldwidegincome.gHegwillgalsogbegdeemedg
toghavegacquiredganygcapitalgpropertygthatghegownedgongthatgdategatgfairgmarketgvalue,gsoghisgcostgbasegi
ngCanadagwillgbegthatgfairgmarketgvalue.g
Also,gbecausegheghadgagchangegingresidencygingthegyear,ghegisgconsideredgagpart-
yeargresident.gAccordingly,ghegwillgbegtaxedgonghisgworldwidegincomegfromgMarchg1gtogDecemberg31.gP
riorgtogMarchg1,ghegwouldgonlygpaygCanadiangtaxgongincomegfromgCanadiangsources.g
(b) LubiegisgagUSgcitizengwhoghasglivedgthereghergentireglife.gShegdoesgnotghavegpropertygorgfamilygingCanada
.gSincegshegonlygspendsghergworkingghoursgingCanada,gitgwouldgbegreasonablegtogassumegthatghergstronges
tgtiesgaregtogthegUnitedgStates.gHergtradinggactivitiesgcangbegconductedgfromgeitherghergUSghomegorgfromgh
ergCanadiangworkplace.gSincegallgofghergprimarygresidentialgtiesgaregtogthegUnitedgStates,gthegevidencegwo
uldgsuggestgthatgshegwouldgbegconsideredgresidentgofgthegUnitedgStates.g
Theg183-daygsojournergrulegwouldgnotgapply,gbecausegLubiegdoesgnotgstaygingCanadagovernight.g
Sincegtheregisgnogchangegingresidencygstatus,gshegisgnotgagpart-yeargresident.g
IngCanada,gasgagnon-
resident,gshegwillgbegtaxedgonghergemploymentgincomegasgshegisg“employedgingCanada”.gTheregwillgalsog
begwithholdinggtaxgonganyginvestmentgincomegearnedgingCanada.gAsgagUSgcitizengandgresident,gLubiegwi
llgbegtaxedgingthegUnitedgStatesgonghergworldwidegincome.gTherefore,gshegwillghavegtogapplygforgagforeig
ngtaxgcreditgonghergUSgreturngforgthegtaxgshegpaysgingCanada.g
g
g
g
g
g
g
,g
8 IntroductiongtogFederalgIncomegTaxationgingCanadag
g
g
g
g
g
g
(c) SincegEphrangmovedgforgagjob,gtheghouseghegsharedgwithghisgcommon-
lawgpartnergwasgsold,gandghisgcommon-
lawgpartnergmovedgwithghim,gitgseemsgcleargthatgthegprimarygresidentialgtiesgweregbrokengandgthatgEphra
ngdidgmakegagcleangbreakgduringgthegcurrentgyear.gTheregisgnogevidencegthatgwouldgindicategotherwise.g
Thegnextgquestiongisg“Ongwhatgdategdidghegbecomegagnon-
resident?”gThegCRA’sgpositiongisgthatgitgwillgnotgbegMayg1stgwhenghegmoved,gbutgJulyg30thgwhenghisgho
usegwasgsoldgandghisgcommon-
lawgpartnergmovedgtogbegwithghim.gThisgwouldgbegconsideredgthegdategofgtheg“cleangbreak”.gAngargume
ntgcouldgalsogbegmadegthatgEphrangmadegagcleangbreakgfromgCanadagongMayg1st.g
ThegsojournergrulegonlygconsidersgthatgperiodgduringgthegyeargwhengEphrangwasgagnon-
resident.gSincegtheregisgnogindicationgthatghegspentganygtimegbackgingCanadagaftergJulyg30th,ghegwouldgn
otgbegconsideredgtogbegsojourninggingCanadagduringgthegcurrentgyear.g
Ephrangandghisgcommon-
lawgpartnergwillgpaygtaxgingCanadagongtheirgworldwidegincomegupgtogJulyg30th.gAftergJulyg30,ghegwillgon
lygbegtaxedgongincomegfromgCanadiangsources.gTheygwillgalsogbegdeemedgtoghavegdisposedgofgallgcapital
gpropertygongJulyg30th.g
(d) AlthoughgshegisgagU.S.gcitizen,gJulia’sgprimarygresidentialgtiesgaregtogCanadagsogshegwillglikelygbegconsid
eredgagresidentgofgCanada.g
SheglivesgingCanadagwithghergparents.gShegattendsgagCanadianguniversitygand,gongcompletiongofguniversit
y,gshegtookgagfull-
timegjobgingCanada.gAllgevidencegindicatesgthatgshegbecamegagCanadiangresident.gHergsummergjobgingCo
loradogseemsgtoghavegbeengtemporary.g
Thegdifficultgquestiongisg“WhengdidgshegbecomegagCanadiangresident?”gWasgitgingAugustgtwogyearsgagog
whengshegmovedgtogCanadagorgthisgyeargwhengshegbegangfull-
timegemploymentgingCanada?gOrgdidgshegmakegagdecisionginglastgyeargtogmovegtogCanadagongaglong-
termgbasis?g
Itgappearsgthatgthisgyear,gatgtheglatest,gshegwillgbegconsideredgagresidentgofgCanadagandgtaxedgonghergworl
dwidegincome.gCitizenshipgisgirrelevantgtogagperson’sgresidentgstatusgingCanada,gbutgJuliagwillgalsogbegta
xablegingthegUnitedgStates,gsincegtheygtaxgbasedgongcitizenship.gConsequently,gJuliagwillgbegtaxedgingbot
hgCanadagandgthegUnitedgStatesgandgwillgneedgtogapplygforgagforeigngtaxgcreditgonghergUSgreturngforgthegt
axgshegpaysgingCanada.g
(e) BecausegHelen’sgprimarygresidentialgtiesgremaingingthegUnitedgStates,gshegwillgnotgbegconsideredgagresid
entgofgCanadagundergcommonglaw.gHowever,gsheghasgsojournedgingCanadagforg183gdaysgorgmoregandgwil
l,gtherefore,gbegdeemedgtogbegagresidentgofgCanadagandgtaxedgingCanadagonghergworldwidegincome.gHow
ever,gasgagcitizengofgthegUnitedgStates,gshegwillgalsogbegtaxedgtheregonghergworldwidegincome.gTogavoidgd
oublegtaxation,gshegwillgneedgtogrefergtogthegCanada–USgtaxgtreatygtogresolvegthegissue.g
2:
Glowgv.gThegQueen,g92gDTCg6467g(F.C.T.D.)]g
1. Gathergallgthegfactsgleadinggupgto,gduring,gandgaftergthegmove.g
2. Developgyourgbestgargumentsgforgbothgresidentgandgnon-residentgstatus.gBegbalancedgingyourganalysis.g
3. Analyzegthegstrengthsgandgweaknessesgofgyourgargumentsgbygevaluatinggthegfactsgrathergthangsimplygclas
sifyinggorglistinggthegfacts.g
4. Arrivegatgagconclusiongofgresident,gnon-resident,gorgdeemedgresidentgconsistentgwithgyourganalysis.g
5. Ifgtheregisgagchangegingresidencygstatus,gthengdeterminegthegdategongwhichgthatgchangegmostglikelygtookgp
lace.gIngthegyeargofgchangegthegindividualgwillgbegagpart-
yeargresident,gi.e.,gresidentgforgpartgofgthegyeargandgnon-residentgforgpartgofgthegyear.g
g
g
g
g
g
g
g
CHAPTER 1 g g
Introduction g
g
g
Solutiong1:gIdentifygsectiongofgthegActg
g
Thegfollowinggsummarygisgdiscussedgingmoregdetailgbelow:g
Caseg Topicg Partg Divisiong Subdivisiong Provisiong
(A) Persong..................................................... g XVIIg —g —g subsectiong248(1)g
(B) Donationgbygindividual............................ g Ig Eg ag subsectiong118.1(3)g
(C) Balance-duegday...................................... g XVIIg —g —g subsectiong248(1)g
(D) Lifeginsurancegpremiums......................... g Ig Bg ag subsectiong6(4)g
(E) Capitalgdividendg...................................... g Ig Bg hg subsectiong83(2)g
(F) Incomegtaxginstalmentsgforgindividualg.....g Ig Ig —g subsectiong156(1)g
(G) Qualifiedgsmallgbusinessgcorporationgshareg Ig Cg —g subsectiong110.6(1)g
Reg.gPartgII,g
(H) Informationgreturngforgdividendsg.............g —g —g —g
paragraphg201(1)(a)g
(I) Definitiongofgtestamentarygtrust.g.............g Ig Bg kg subsectiong108(1)g
(J) Employeegloan.g....................................... g Ig Bg fg subsectiong80.4(1)g
(K) Dispositiongofgnon-depreciablegcapitalg g g g g
property................................................... g XVIIg —g —g subsectiong248(1)g
(L) RRSPgadministrationgfees.g......................g Ig Bg bg paragraphg18(1)(u)g
(M) Limitgongdeductiblegexpenses..................g Ig Bg fg sectiong67g
TaxablegdividendsgreceivedgbygCanadian
(N) corporationg.............................................. g
g
Ig Cg —g subsectiong112(1)g
(O) RRSPgexcessgcontributionsg.....................g X.Ig —g —g subsectiong204.1(1)g
g
(A) Persong—
gPartgXVII,gsubsectiong248(1):gThegtermgisgusedgthroughoutgthegAct,gsogitgisglikelygtogbegfoundgingthegin
terpretationgsection.gThegdefinitiongisgsimilargtogmanygingthegActgingthatgitgdoesgnotgtellgyougexactlygwh
atgagpersongis;gitgtellsgyougwhatgagpersongincludes.g
(B) Donationgbygangindividualg—
gPartgI,gDivisiongE,gSubdivisionga,gsubsectiong118.1(3):gTaxgcreditsgaregfoundgingDivisiongE.gCreditsgth
atgaregparticulargtogindividualsgaregfoundgingSubdivisiongagofgDivisiongE.g
(C) Balance-duegdayg—
gPartgXVII,gsubsectiong248(1):gThegtermghasgapplicationgtogallgtaxgfilersgand,gtherefore,gshouldgbegfoun
dgingtheginterpretationgsection.gHowever,gthegtermghasgagdifferentgmeaninggdependinggongthegtypegofgta
xgfiler.gForgtrustsgandgindividuals,gspecificgtiminggisgprovided.gForgcorporations,gthegprovisiongrefersgto
gsectiong157.g
(D) Groupgtermglifeginsurancegpremiumsgpaidgbygemployerg—
gPartgI,gDivisiongB,gSubdivisionga,gsubsectiong6(4):gPaymentsgmadegongbehalfgofgangemployeegbygange
mployerglikelygresultgingincomegfromgemployment.gSubdivisiongagincludesgthegprovisionsgforgcalculati
nggincomegfromgemployment.g
(E)Capitalgdividendg—
gPartgXVII,gsubsectiong248(1):gThegtermgisgfoundgingsubsectiong248(1)gbutgagdefinitiongisgnotgactuallyg
provided,gonlygagreference.gItgrefersgtoganothergsectiong—
gPartgI,gDivisiongB,gSubdivisiongh,gsubsectiong83(2):gCapitalgdividendsgaregtax-
, freegdistributionsgbygagcorporationgtogitsgshareholders,gsogthegprovisiongisglikelygtogbegfoundgingPartgI,g
DivisiongB,gSubdivisionghgthatgdealsgwithgcorporationsgandgtheirgshareholders.g
(F) Incomegtaxginstalmentsgforgangindividualg—
gPartgI,gDivisiongI,gsubsectiong156(1):gTheginformationgthatgisgrequiredgdealsgwithgpaymentsgtogthegCR
A;gthereforegthisginformationgshouldgbegfoundgingDivisiongIgdealinggwithgreturns,gassessments,gpaymen
tgandgappeals.g[Somegstudentsgmaygalsogidentifygsubsectiong155(1)gasgdealinggwithgfarmersgandgfisher
men.]g
(G) Qualifiedgsmallgbusinessgcorporationgshareg—
gPartgI,gDivisiongC,gsubsectiong110.6(1):gThegcapitalggainsgdeductiongthatgisgavailablegforgqualifiedgsma
llgbusinessgcorporationgsharesgisgagdeductiongthatgisgavailablegingcomputinggtaxablegincomegandgisgthere
foregfoundgingDivisiongC.g
g g
g
g
g
g
g
2g IntroductiongtogFederalgIncomegTaxationgingCanadag
(H) Filingginformationgreturngforgdividendsgpaidg—
gRegulationsgPartgII,gsubsectiong201(1):gThegRegulationsgprovidegimportantgdetailgregardinggagnumbergofgtheginco
megtaxgrules.gIngordergtogensuregthatgindividualsgaregadvisedgofgtheginformationgrequiredgtogbegreportedgongtheirgpe
rsonalgtaxgreturnsg(andgtogallowgthegCRAgtogensuregthatgthegincomegisgreported),gcorporationsgaregrequiredgtogfilegs
lipsgsuchgasgT5sgforgdividendsgpaid.g
(I) Testamentarygtrustg—
gPartgI,gDivisiongB,gSubdivisiongk,gsubsectiong108(1):gThegphrasegdescribesgagtrustgsogitgisglikelygthatgthegdefinitio
ngwillgbegfoundgingSubdivisiongkgdealinggwithgtrusts.gSectiong108gcontainsgdefinitionsgforgthegsubdivision.g
(J) Interest-freegloangbenefitg—
gPartgI,gDivisiongB,gSubdivisiongf,gsubsectiong80.4(1):gSincegthegamountgrelatesgtogangemployee,gitgmightgbegexpec
tedgthatgthegprovisiongwouldgbegfoundgingsectiong6g(ingfactgthegprovisiongthatgrequiresgangincomeginclusiongisgfoun
dgingsubsectiong6(9)).gHowever,gthegactualgcalculationgofgthegamountgofgincomegisgfoundgingSubdivisiongfgwhichgc
ontainsgrulesgrelatedgtogthegcalculationgofgincome.g
(K) Dispositiongofgnon-depreciablegcapitalgpropertyg—
gPartgXVII,gsubsectiong248(1):gThegtermg“disposition”gisgusedgthroughoutgthegAct,gsogitgisglikelygtogbegfoundgingthi
sgdefinitiongsection.g
(L) LimitgongdeductiongofgRRSPgadministrationgfeesg—
gPartgI,gDivisiongB,gSubdivisiongb,gparagraphg18(1)(u):gAtgonegtime,gwhengthegfeesgweregdeductible,gtheygweregco
nsideredgagcarryinggchargegdeductiblegingcomputinggincomegfromgproperty.gTherefore,gthegrestrictiongongthegdedu
ctiongisgfoundgingsectiong18gwhichgprovidesgaglistgofgitemsgthatgaregspecificallygnotgdeductiblegingcomputingginco
megfromgbusinessgorgproperty.g
(M) Limitgongdeductiblegexpensesg—
gPartgI,gDivisiongB,gSubdivisiongf,gsectiong67:gThegrestrictiongongthegamountgofgdeductiblegexpensesgappliesgthrou
ghoutgthegAct.gTherefore,gthegprovisiongisgfoundginggeneralgrulesgforgcomputinggincomegthatgaregfoundgingSubdivi
siongf.g
(N) Corporategdividendgdeductiong—
gPartgI,gDivisiongC,gsubsectiong112(1):gThegconceptgdealsgwithgagdeductiongthatgisgavailablegtogagcorporation.gItgmi
ghtgbegexpectedgtogbegfoundgingDivisiongB,gSubdivisiongbgdealinggwithgthegcalculationgofgincomegfromgproperty.g
However,gingthisgcase,gthegdeductiongisgnotgconsideredgtogreducegincomegfromgpropertygbutgisgaggeneralgdeduction
gavailablegingcomputinggtaxablegincome.g
(O) ExcessgRRSPgcontributionsg—
gPartgX.I,gsubsectiong204.1(1):gThisgisgagspecialgtaxgthatgisgfoundgingthegActgandgappliesgwhengangindividualghasgco
ntributedgmoregtogangRRSPgthangisgallowedgbygthegAct.gIngthisgcase,gthegspecialgtaxgisgintendedgtogdiscouragegpeop
legfromgtakinggadvantagegofgthegbenefitsgofgangRRSPgbeyondgthosegthatgaregprovidedgforgingthegrules.g
g
g
g
g
g
g
,SolutionsgtogChapterg1gAssignmentgProblemsg 3g
Solutiong2:gDeterminegIncomegUsinggOrderinggRulesg[Notegtoginstructors:gChangesgt
ogthisgproblemgfromgpriorgyeargincludegpropertygincomegchangedgfromg$1,350gtog$1,
650gandgrentalgincomegfromg$975gtog$2,500]g
DivisiongBg—gSec.g3g
g g
Par.g3 Subdivisiongag g
$g $g98,400g
(a)g Sec.g5,g6,g7,g8g Employmentgincome...................................................... g
g g g
g g
Subdivisiongbg
g
Sec.g9g Propertygincome............................................................... g $gg1,650gg
g
Sec.g9g Rentalgpropertygincome.................................................. g g 2,500g
Subdivisiongd:gMiscellaneousgsourcesg 4,150g
Par.g56(1)(a)g Employmentginsurance..................................................... g $g 600gg
Par.g56(1)(a)g Retiringgallowanceg........................................................... g g 800g g 1,400g
g g g
$103,
950g
Par.g3 Subdivisiongc:gNetgtaxablegcapitalggainsg
(b)g
Par.g38g Taxablegcapitalggainsg(netgofgallowablegcapitalglosses).....g g 100g
g g
$104,0
50g
Par.g3 Subdivisionge:gMiscellaneousgdeductionsg
(c)g
Sec.g62g Movinggexpense............................................................... g $gg1,70 g
Sec.g63g 0g g
gg(4,56
Childgcaregexpenseg........................................................... gCPPgen 1,800g 1)g
hancedgandgadditionalgdeductiong gg
g1,074g
$g99,489g
Par.g3(d)g Lossesgfromgnon-capitalgsources:g
Sec.g9g Businessgloss................................................................ g g (700)g
DivisiongBgincomeg....................................................................................... g $g98,789g
DivisiongC:gDeductionsg—gSecg111.1g
Par.g111(1)(a)g Non-capitalglossesg................................................................................ gg (600)g
Taxablegincomeg............................................................................................................................. ...........g$g98,189g
DivisiongE:gBasicgfederalgtaxg—gSec.g118.92g
Taxgbeforegcreditsg....................................................................................................................... g $g16,973g
Sec.g118g Personalgcredits..................................................................................................... g (2,419)g
Sec.g118.7g CPPgcontributiongcreditg....................................................................................... g (503)g
Sec.g118.7g EIgpremiumgcreditg................................................................................................g (162)g
Ssec.g118(10)gCanadagEmploymentgtaxgcreditg............................................................................ g (221)g
Sec.g118.2g Medicalgexpensegcreditg......................................................................................... g (9)g
Sec.g118.1g Charitablegdonationsgcreditg........................................................................................ gg (26)g
Basicgfederalgtax.......................................................................................................................... g $g13,633g
,g g g
4g IntroductiongtogFederalgIncomegTaxationgingCanadag
Solutiong3:gIdentifygandgDefinegWords/TermsgFoundgingSectiong2g
Wordsgandgtermsgfoundgingsectiong2g
(A)gDivisiongAgofgPartgIgofgthegActgconsistsgofgsectiong2gofgthegAct.gSectiong2gconsistsgofgthreegsubsections.g
Subsectiong2(1):g
“taxablegincome”g—gThisgisgdefinedgingsubsectiong2(2).g
“taxationgyear”g—
gSubsectiong249(1)gcontainsgthegdefinitiongofgagtaxationgyear.gForgcorporations,gthegtaxationgyeargisgthegfiscalgp
eriodgofgthegcorporation;gforgindividuals,gthegtaxationgyeargisgthegcalendargyear.g
“fiscalgperiod”g—gThisgisgalsogagdefinedgterm,gfoundgingsubsectiong249.1(1).g
“corporation”g—
gThisgwordgisgpartgofgagdefinedgtermgingsubsectiong248(1),g“corporationgincorporatedgingCanada”.g
“individual”g—
gSubsectiong248(1)gdefinesgindividualgasgagperson,gothergthangagcorporation,g“person”g—
gThisgisgalsogdefinedgingsubsectiong248(1).gThisgisgexpandedgbelow.g
“calendargyear”g—
gThisgisgnotgdefinedgingthegAct.gHowever,gthegInterpretationgActgdefinesgthegtermgingparagraphg37(1)(a)gtogmea
ngagperiodgofgtwelvegconsecutivegmonthsgcommencinggongJanuaryg1.g
“person”g—
gThegdefinitiongofgpersongisgfoundgingsubsectiong248(1).gSectiong248gisganginterpretationgsectiongandgmanygof
gthegwordsgandgtermsgusedgingthegAct,gwhichgrequiregdefinition,garegfoundgingthisgsection.gPersongisgdefinedgt
ogincludeganygbodygcorporategandgpolitic,gandgthegheirs,gexecutors,gadministratorsgorgotherglegalgrepresentati
vesgofgsuchgbody.g
“resident”g—
gAlthoughgthegActgincludesgagdefinitiongofgdeemedgresidentsg(subsectionsg250(1)gandg(4)),gthegwordg“resident
”gisgnotgitselfgdefinedgingthegAct.gCanadiangresidentsgaregtaxedgongtheirgworldwidegincome.gAsgthisgtermgisgfu
ndamentalgtogestablishinggagliabilitygforgCanadiangtax,gthereghavegbeengmanygcourtgcasesgcentredgongthegissue
gofgresidency.gThegcommonglawgprinciplesgwhichghavegevolvedgfromgthesegcasesgaregthegbasisgforgtheginterpre
tationgofgthisgword.gResidencygisgmoregfullygdiscussedgingChapterg2.g
“Canada”g—
gSectiong255gdefinesgCanadagtogincludegcertaingseagbedsgadjacentgtogthegcoasts,gasgwellgasgthegairspacegabovegt
heggeographicgboundariesgofgCanada.g
Subsectiong2(2):g
Asgmentionedgabove,gsubsectiong2(2)gisgitselfgagdefinition.gThisgsubsectiongisgforgthegpurposegofgdefiningg
“taxablegincome.”g
“taxpayer”gisgfoundgingsubsectiong248(1).gThisgisganygperson,gwhethergorgnotgliablegtogpaygtax.g
“incomegforgthegyear”g—
gSectiong3gcontainsgthegblueprintgforgthegcalculationgofgincome.gThegtermg“income,”ghowever,gisgnotgdefined.
gSectiong3gstates:g“ThegincomegofgagtaxpayergforgagtaxationgyeargforgthegpurposesgofgthisgPartgisghisgincomegde
terminedgbygthegfollowinggrulesg...”gIngordergtogdeterminegincomegundergsectiong3,goneghasgtogfirstgknowgwha
tgincomegis.gAsgincomegisgnotgdefined,gwegagaingmustgturngtogjurisprudencegandgcommonglanguage.gAgain,gth
eregaregnumerousgcourtgcasesgovergthegissuegofgwhatgconstitutesgincome.g
Subsectiong2(3):g
“employed”g—gSubsectiong248(1)gdefinesgthisgwordgasgperforminggthegdutiesgofgangofficegorgemployment.g
“business”g—
gSubsectiong248(1)gdefinesgthisgwordgtogincludegagprofession,gcalling,gtrade,gmanufacture,gorgundertakinggofga
nygkindgwhatever,gandgangadventuregorgconcerngingthegnaturegofgtrade.gThegdefinitiongexcludesgangofficegorge
mployment.g
“carryinggongagbusinessgingCanada”g—
gSectiong253gprovidesgangextendedgmeaninggofgthisgterm,gasgitgappliesgtognonresidents.gThisgprovidesgagnumb
ergofgcriteriagtogexpandgwhengagbusinessgwillgbegconsideredgtogbegconductedgingCanada.gHowever,gthegtermg“c
arryinggongagbusiness”gisgnot,gitself,gdefined.gTherefore,galthoughgweghavegangextendedgmeaninggofgthisgtermg
, legislatedgbygthegAct,gwegwillgnotgfindgaglegislatedgdefinitiongofgthegtermgitself.gAgain,gthereghavegbeengnume
rousgcasesgdisputinggwhethergagbusinessgwasgcarriedgon.g
“disposed”g—
gAlthoughgthegtermgdisposed gisgnotgitselfgdefined,g“disposition”gisgdefinedgingsubsectiong248(1)gtogbe,gingpara
graphg(a),ganygeventgorgtransactiongwhichgentitlesgthegtaxpayergtog“proceedsgofgdisposition.”g“Proceedsgofgdis
position”gis,gitself,gagdefinedgtermgfoundgingsubsectiong13(21)gandgsectiong54.g
“taxablegCanadiangproperty”g—
gThisgisgdefinedgingsubsectiong248(1)gandgisgquitegaglengthygdefinition.gTaxablegCanadiangpropertygincludes,g
amonggothergitems,grealgpropertygsituatedgingCanada,gsharesgofgprivategCanadiangcompanies,gandgcertaingpart
nershipginterestsgandgtrustginterestsgwhichgderivegtheirgvaluegprincipallygfromgthesegformergtwogtypesgofgprop
erty.g
“taxablegincomegearnedgingCanada”g—
gSubsectiong248(1)gdefinesgthisgtermgtogmeangtaxablegincomegdeterminedgingaccordancegwithgDivisiongDgofgPa
rtgI,gbutgingnogcasegcangthisgevergbeglessgthangnil.g
SolutionsgtogChapterg1gAssignmentgProblemsg 5g
g
Agreviewgofgsectiong2gclearlygemphasizesgthegimportancegofgunderstandinggthegtermsgusedgthroughoutgthegAct.
gIngmanygexamples,gthegActgwillgexpandgupongtermsgorgprovidegcomputationalgrulesgforgcertaingterms,gbutgdoesgnotg
extendgtogprovidinggagstatutorygdefinitiongofgthegtermgitself.gThisgisgonegofgmanygreasonsgwhyginterpretationgofgtheg
statutegremains,gatgtimes,gangimprecisegpractice.gItgalsogdemonstratesgthat,gwhilegthegActgisgthegcornerstonegforgthegt
axationgsystem,gitgcannotgbegstudiedgingisolationgasgitgdrawsgmeaninggfromgothergexternalgsources.g
g
g
g
Componentsgofgsubsectiong2(3)g
Subsectiong2(3),glikegsubsectiong2(1),gisgag“charginggprovision”,gbecausegitgchargesgsomeonegwithgthegresponsibilit
ygtogpaygagtax.g
g
g
Componentsgofgsubsectiong2(3)g
g
(i) thegpersongwhogisgthegsubjectgofgthegprovisiong
g
• "agpersongwhogisgnotgtaxablegundergsubsectiong(1)",gi.e.,gagpersongwhogisgnotgresidentgingCanadag(i.e
.,gagnon-resident)g
g
g
(ii) thegactivity,geventgorgconditiongthatgmustgbegmetgforgthegprovisiongtogapplyg
g
• agpersong
• wasgemployedgingCanadag
• carriedgongbusinessgingCanadagorg
• disposedgofgtaxablegCanadiangpropertyg
g
g
• notegthegusegofgthegwordg"or"gingtheglistgofgthreegactivitiesg
g
g
(iii) thegconsequencesgofgthegactivitygorgeventgtogthegpersongwhogisgthegsubjectgofgthegprovisiong
g
• "angincomegtaxgshallgbegpaidg...gongthegperson'sgtaxablegincomegearnedgingCanadagforgthegyearg..."g
g
g
• notegthegusegofgthegwordg"shall",gindicatinggagmandatorygpaymentg
g
g
(iv) thegtimeframegforgthegapplicationgofgthegprovisiong
g
• incomegisgearnedg
g
• atganygtimegingthegyeargorgagpreviousgyearg
g
g
g
g
g
g
CHAPTER 2 g g
, Liability for Tax g g g
g
Solutiong1:gIndividualgresidencyg—gMulti-Partg
1. Gathergallgthegfactsgleadinggupgto,gduring,gandgaftergthegmove.g
2. Developgyourgbestgargumentsgforgbothgresidentgandgnon-residentgstatus.gBegbalancedgingyourganalysis.g
3. Analyzegthegstrengthsgandgweaknessesgofgyourgargumentsgbygevaluatinggthegfactsgrathergthangsimplygclass
ifyinggorglistinggthegfacts.g
4. Arrivegatgagconclusiongofgresident,gnon-resident,gorgdeemedgresidentgconsistentgwithgyourganalysis.g
5. Ifgtheregisgagchangegingresidencygstatus,gthengdeterminegthegdategongwhichgthatgchangegmostglikelygtookgpl
ace.gIngthegyeargofgchangegthegindividualgwillgbegagpart-
yeargresident,gi.e.,gresidentgforgpartgofgthegyeargandgnon-residentgforgpartgofgthegyear.g
6. Ifgyourgconclusiongisgnon-
resident,gthengdidgthegindividualgsojourngingCanadagforg183gdaysgorgmoregwhilegagnon-resident?g
7. Ifgtheregisgagchangegingresidencygstatus,gthengdetermineghowgthegindividualgwillgpaygtax:g
a. beforegthegdategongwhichgtheirgresidencygchanged,g
b. aftergthegdategongwhichgtheirgresidencygchanged,gandg
c. forgthegyeargingwhichgtheirgresidencygchanged.g
g
(a) AnthonygandghisgwifegbothgmovedgtogCanadagthisgyeargandghavegindicatedgangintentiongtogstaygpermanent
ly.gWegdon’tghaveganyginformationgonghowgtheygcutgtheirgtiesgwithgtheirghomegcountrygorghowgtheygestabli
shedgtheirgtiesgingCanada.gWegalsogdon’tghaveganyginformationgongtheirgimmigrationgstatus.g
AssuminggAnthonyghasgmadegagfreshgstartgingCanadagthisgyear,ghegwillgbegconsideredgtoghavegbecomegagr
esidentgingthisgyear.gWhileghisgwifegandgchildrengmovedgongDecemberg15th,ghegwillglikelygbegconsidered
gtoghavegbecomegagresidentgongthegearliergdate.gHisgwifegandgchildrengwillgbecomegresidentsgongDecemb
erg15th.g
BecausegAnthonyghadgagchangegingresidencygingthegyear,gthegnextgstepgisgtogdeterminegwhenghisgcleangbr
eak/freshgstartgtookgplace.gIngthisgcasegtheregisglimitedginformationgsogthegobviousgchoicegisgMarchg1st.g
AsgofgMarchg1,gthisgyear,ghegwillgbegtaxedgingCanadagonghisgworldwidegincome.gHegwillgalsogbegdeemedg
toghavegacquiredganygcapitalgpropertygthatghegownedgongthatgdategatgfairgmarketgvalue,gsoghisgcostgbasegi
ngCanadagwillgbegthatgfairgmarketgvalue.g
Also,gbecausegheghadgagchangegingresidencygingthegyear,ghegisgconsideredgagpart-
yeargresident.gAccordingly,ghegwillgbegtaxedgonghisgworldwidegincomegfromgMarchg1gtogDecemberg31.gP
riorgtogMarchg1,ghegwouldgonlygpaygCanadiangtaxgongincomegfromgCanadiangsources.g
(b) LubiegisgagUSgcitizengwhoghasglivedgthereghergentireglife.gShegdoesgnotghavegpropertygorgfamilygingCanada
.gSincegshegonlygspendsghergworkingghoursgingCanada,gitgwouldgbegreasonablegtogassumegthatghergstronges
tgtiesgaregtogthegUnitedgStates.gHergtradinggactivitiesgcangbegconductedgfromgeitherghergUSghomegorgfromgh
ergCanadiangworkplace.gSincegallgofghergprimarygresidentialgtiesgaregtogthegUnitedgStates,gthegevidencegwo
uldgsuggestgthatgshegwouldgbegconsideredgresidentgofgthegUnitedgStates.g
Theg183-daygsojournergrulegwouldgnotgapply,gbecausegLubiegdoesgnotgstaygingCanadagovernight.g
Sincegtheregisgnogchangegingresidencygstatus,gshegisgnotgagpart-yeargresident.g
IngCanada,gasgagnon-
resident,gshegwillgbegtaxedgonghergemploymentgincomegasgshegisg“employedgingCanada”.gTheregwillgalsog
begwithholdinggtaxgonganyginvestmentgincomegearnedgingCanada.gAsgagUSgcitizengandgresident,gLubiegwi
llgbegtaxedgingthegUnitedgStatesgonghergworldwidegincome.gTherefore,gshegwillghavegtogapplygforgagforeig
ngtaxgcreditgonghergUSgreturngforgthegtaxgshegpaysgingCanada.g
g
g
g
g
g
g
,g
8 IntroductiongtogFederalgIncomegTaxationgingCanadag
g
g
g
g
g
g
(c) SincegEphrangmovedgforgagjob,gtheghouseghegsharedgwithghisgcommon-
lawgpartnergwasgsold,gandghisgcommon-
lawgpartnergmovedgwithghim,gitgseemsgcleargthatgthegprimarygresidentialgtiesgweregbrokengandgthatgEphra
ngdidgmakegagcleangbreakgduringgthegcurrentgyear.gTheregisgnogevidencegthatgwouldgindicategotherwise.g
Thegnextgquestiongisg“Ongwhatgdategdidghegbecomegagnon-
resident?”gThegCRA’sgpositiongisgthatgitgwillgnotgbegMayg1stgwhenghegmoved,gbutgJulyg30thgwhenghisgho
usegwasgsoldgandghisgcommon-
lawgpartnergmovedgtogbegwithghim.gThisgwouldgbegconsideredgthegdategofgtheg“cleangbreak”.gAngargume
ntgcouldgalsogbegmadegthatgEphrangmadegagcleangbreakgfromgCanadagongMayg1st.g
ThegsojournergrulegonlygconsidersgthatgperiodgduringgthegyeargwhengEphrangwasgagnon-
resident.gSincegtheregisgnogindicationgthatghegspentganygtimegbackgingCanadagaftergJulyg30th,ghegwouldgn
otgbegconsideredgtogbegsojourninggingCanadagduringgthegcurrentgyear.g
Ephrangandghisgcommon-
lawgpartnergwillgpaygtaxgingCanadagongtheirgworldwidegincomegupgtogJulyg30th.gAftergJulyg30,ghegwillgon
lygbegtaxedgongincomegfromgCanadiangsources.gTheygwillgalsogbegdeemedgtoghavegdisposedgofgallgcapital
gpropertygongJulyg30th.g
(d) AlthoughgshegisgagU.S.gcitizen,gJulia’sgprimarygresidentialgtiesgaregtogCanadagsogshegwillglikelygbegconsid
eredgagresidentgofgCanada.g
SheglivesgingCanadagwithghergparents.gShegattendsgagCanadianguniversitygand,gongcompletiongofguniversit
y,gshegtookgagfull-
timegjobgingCanada.gAllgevidencegindicatesgthatgshegbecamegagCanadiangresident.gHergsummergjobgingCo
loradogseemsgtoghavegbeengtemporary.g
Thegdifficultgquestiongisg“WhengdidgshegbecomegagCanadiangresident?”gWasgitgingAugustgtwogyearsgagog
whengshegmovedgtogCanadagorgthisgyeargwhengshegbegangfull-
timegemploymentgingCanada?gOrgdidgshegmakegagdecisionginglastgyeargtogmovegtogCanadagongaglong-
termgbasis?g
Itgappearsgthatgthisgyear,gatgtheglatest,gshegwillgbegconsideredgagresidentgofgCanadagandgtaxedgonghergworl
dwidegincome.gCitizenshipgisgirrelevantgtogagperson’sgresidentgstatusgingCanada,gbutgJuliagwillgalsogbegta
xablegingthegUnitedgStates,gsincegtheygtaxgbasedgongcitizenship.gConsequently,gJuliagwillgbegtaxedgingbot
hgCanadagandgthegUnitedgStatesgandgwillgneedgtogapplygforgagforeigngtaxgcreditgonghergUSgreturngforgthegt
axgshegpaysgingCanada.g
(e) BecausegHelen’sgprimarygresidentialgtiesgremaingingthegUnitedgStates,gshegwillgnotgbegconsideredgagresid
entgofgCanadagundergcommonglaw.gHowever,gsheghasgsojournedgingCanadagforg183gdaysgorgmoregandgwil
l,gtherefore,gbegdeemedgtogbegagresidentgofgCanadagandgtaxedgingCanadagonghergworldwidegincome.gHow
ever,gasgagcitizengofgthegUnitedgStates,gshegwillgalsogbegtaxedgtheregonghergworldwidegincome.gTogavoidgd
oublegtaxation,gshegwillgneedgtogrefergtogthegCanada–USgtaxgtreatygtogresolvegthegissue.g
2:
Glowgv.gThegQueen,g92gDTCg6467g(F.C.T.D.)]g
1. Gathergallgthegfactsgleadinggupgto,gduring,gandgaftergthegmove.g
2. Developgyourgbestgargumentsgforgbothgresidentgandgnon-residentgstatus.gBegbalancedgingyourganalysis.g
3. Analyzegthegstrengthsgandgweaknessesgofgyourgargumentsgbygevaluatinggthegfactsgrathergthangsimplygclas
sifyinggorglistinggthegfacts.g
4. Arrivegatgagconclusiongofgresident,gnon-resident,gorgdeemedgresidentgconsistentgwithgyourganalysis.g
5. Ifgtheregisgagchangegingresidencygstatus,gthengdeterminegthegdategongwhichgthatgchangegmostglikelygtookgp
lace.gIngthegyeargofgchangegthegindividualgwillgbegagpart-
yeargresident,gi.e.,gresidentgforgpartgofgthegyeargandgnon-residentgforgpartgofgthegyear.g
