Solution 4 (A) Frank's Residency Status

Solution 4
(a) Frank’s Residency Status

It is necessary to determine if Frank became a resident for Canadian tax purposes on January
15, 2010. For 2010, there are three residency degrees he could fall into:
1) Part-year resident
2) Deemed resident
3) Non-resident
1) Part-year Resident
For Frank to be a part-year resident for 2010, he must have established a continuing state of
relationship with Canada on January 15, 2010.
Factors indicating that Frank established ties with Canada on January 15, 2010 are as
follows:
Primary Ties
Frank had a dwelling place in Canada available for his occupation.
Frank’s spouse Tamara lives with him in Canada.
Secondary Ties
Secondary ties must be looked at collectively to evaluate the significance of any one tie.
Bank account
Health club membership
Office at the condo
Canadian P.O. box and telephone listing
Evidence of Intention to Permanently Sever Residential Ties
It could be argued that Frank intended to permanently sever residential ties in the Cayman
Islands because he attempted to sell his residence there.
Regularity and Length of Visits to Canada
Frank spent most of his time in Canada (271 days versus 365 days in the year).
He spent only 12 days in the Cayman Islands after January 15, most of which was for
vacation time. He used the Cayman Island’s property as a vacation property not a home or
dwelling.
Primary and Secondary Factors Indicating a Continuing State of Relationship with the
Cayman Islands
Cayman Islands home and office
Car and furniture
Bank and investment accounts
Driver’s license
Tax Treatment:
Taxable on Canadian source income from January 1, 2010 to January 15, 2010. He would
have no Canadian source income for this period.
Taxable on worldwide income from January 15, 2010 onwards.
2) Deemed Resident
If Frank were not considered to be a part-time resident, he could be deemed to be a resident
of Canada for all of 2010 because he sojourned in Canada at least 183 days.
Tax Treatment:
Taxable in Canada on his worldwide income for 2010.
3) Non-Resident
If Frank is not a part-year or deemed resident of Canada, he would be a non-resident.
Tax Treatment:
Taxable in Canada only if employed, carrying on business or disposed of taxable Canadian
property under subsection 2(2) and taxable only on Canadian source income under
section 115 of the Act.
Treaty Impact
If Frank were found to be a resident of both Canada and the Cayman Islands, it would be
necessary to consider the tie-breaker rule in a treaty between the two countries. As Canada
does not have a tax treaty with the Cayman Islands, there is no tie-breaker rule available
under a treaty to impact Frank’s residency status in Canada.
Conclusion:
It is likely that the CRA would consider Frank to be a part-year resident of Canada for 2010
because of his primary ties to the country starting January 15, 2010.
(b) Residency of SJ
SJ would be considered a resident of Canada, if the mind and management of the company is
located in Canada.
Frank, effectively, controlled and managed SJ from the home office in Toronto for 2010.
Article IV of the Canada–U.S. Treaty is a tie-breaker rule used to determine residency where
a taxpayer is considered a resident of both Canada and the United States. SJ would be
deemed a resident of the United States because it was incorporated in the United States.
Tax Treatment
As a non-resident, SJ would only be taxable in Canada on any income from carrying on
business in Canada.
(c) Tamara’s Residency Status

It is necessary to determine if Tamara became a non-resident for Canadian tax purposes on
February 18, 2011. For 2011, there are three residency degrees she could fall into:
1) Full-time resident
2) Deemed resident
3) Part-year resident
1) Full Time Resident

For Tamara to retain her full-time residency status in Canada, she must have maintained a
continuing relationship with the country after February 18, 2011.
Factors that indicate that she retained a continuing state of relationship with Canada are as
follows:
Primary Ties
None
Secondary Ties
She is an officer and employee of the Canadian company.
Canadian investments and a self directed RRSP.
Vehicle and Canadian driver’s licence.
Regularity and Length of Visits to Canada

Tamara will return to Canada once a month.
Tax Treatment
As a full time resident, Tamara would be taxed on her worldwide income for 2011 per
subsection 2(1).
2) Deemed Resident
As Tamara was in Canada for less than 183 days during 2011, she would not be deemed to
be a resident of Canada under subsection 250(1).
3) Part-year Resident
For Tamara to be a part-time resident of Canada, she must have made a “clean break” from
Canada on February 18, 2011.
Factors that indicate that she made a clean break are as follows:
Primary Ties — Dwelling/Spouse

She sold her condo, and Frank moved with her to the Cayman Islands.
Secondary Ties
She closed her bank account in Canada.
She and Frank established significant residential ties in the Cayman Islands.
Tax Treatment
Tamara would be taxed on her worldwide income to February 18, 2011 and taxed on
Canadian source income after February 18, 2011.
As she will be employed by QT after February 18, 2011, Tamara would be taxable in Canada
on income from her employment.
(d) Residency of QT
After Tamara moves, QT will effectively be controlled and managed from the Cayman
Islands.
This will not affect the residency status of QT, as the company was incorporated in Canada
after April 26, 1965, and is deemed a resident of Canada throughout each taxation year under
subsection 250(4).
Therefore, the company will continue to be taxed on its worldwide income.

Solution 4 (A) Frank's Residency Status

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Solution 4 (A) Frank's Residency Status

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Solution 4

(a) Frank’s Residency Status

(c) Tamara’s Residency Status

1) Full Time Resident

Regularity and Length of Visits to Canada

Primary Ties — Dwelling/Spouse

Therefore, the company will continue to be taxed on its worldwide income.

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