CRA Relief for COVID-19 Related Travel Restrictions and Income Tax Residency Determination

The CRA updated their guidance on international income tax issues raised by COVID-19. This updated guidance applies to the period from March 16 until September 30, 2020.

Individuals:

For travelers and visitors to Canada, during the time when travel restrictions were imposed and who remained in Canada, due solely to the restrictions, will not be deemed as residents of Canada for tax purposes. Under Canadian tax law, any individual who stays in Canada for 183 days or more in a calendar year, may be deemed a resident of Canada for tax purposes. However, as there was a travel restriction, the CRA will not consider the days, which individuals were unable to return to their home country thereby resulting in stays beyond the 183-day count.

The CRA also advises that such travel restrictions may not affect the tax residency of a non-resident individual, or the ability of a cross-border employee to qualify for treaty benefits on employment income.

Corporations:

By CRA definition, a corporation incorporated outside of Canada is to be a deemed resident in Canada if "its central management and control" is exercised in Canada. Therefore, the location of the board of director meetings is the most common key factor in determining where the "central management and control" resides. Due to the travel restrictions, directors of such corporations may have participated in board meetings while physically present in Canada; which could potentially cause the corporation to be considered as a resident of Canada.

For those countries with which Canada has an income tax treaty, residency tie-breaker rules exist to deal with these dual residency issues. While some income tax treaties look to place of incorporation as a tie-breaker, others look to using the facts and circumstances determination by competent authority.

CRA states that, for treaties that base residency on the location of effective management, the entity will not be regarded as a resident of Canada only because a director participated in a board meeting from Canada due to COVID-19 travel restrictions. Non-treaty countries will be determined on a case by case basis.

Do you have further questions?

Please note, the information provided in this article is a general outline and your particular tax situation is to be considered in determining the right filing status for you. Our office can assist you with any inquiries you may have regarding your filing status, based on length of stay due to COVID-19 or other reasons.

Contact us for assistance and our experts will provide advice and services tailored to assist you.