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AS EMPLOYERS LOOK BEYOND OUR BORDERS FOR THE RIGHT PERSON FOR THE JOB, THE CONCEPT OF CANADIAN TAX RESIDENCY IS SURE TO BE A KEY CONCERN
The business press has devoted more than a few pages in recent years to the brain drain of talented Canadians relocating to the United States. Meanwhile, as Canadian corporations face the challenge of finding the best individuals to fill key positions within their organizations, they are discovering many US residents show little interest in settling in Canada and paying our higher personal income tax.
Nevertheless, as companies continue to merge and make acquisitions, the movement of foreign employees into Canada has become a necessity for employers and quite commonplace. Flexibility in an employee's role and location is often requested. Whether the job entails a permanent position or a temporary assignment, Canadian residency has become a major issue.
In today's environment - where mobility is a must and the use of modern technology common - some Canadian employees may not actually be tax residents of Canada. An individual may remain based in the United States and make business trips to Canada on an as-needed or limited basis. Given the individual's limited presence in the Canadian corporate office, he or she becomes a "virtual employee." While it is possible to minimize the Canadian tax on employment and other personal income for such employees, careful planning around residency must occur prior to the actual move or acceptance of the position. This is especially true given the increased interest in this issue demonstrated by the Canada Customs and Revenue Agency.
Before planning can begin, one must first understand the concept of Canadian residency from a domestic tax perspective and residency as defined in the Canada-US Income Tax Convention (or treaty).
Canadian residency
The principle basis upon which the Income Tax Act of Canada imposes a liability for income tax is residency. This contrasts with the United States where not only is physical presence considered but also citizenship or lawful permanent residency status (that is, the Green Card test).
In general, individuals residing in Canada are taxable on their worldwide...