Cross Border Workers: Travelling Lite has Tax Benefits in Court

In a recent case the ‘Tie Breaker’ rules were used to determine the tax status of a group of American business people working in Canada in Dysert v. The Queen (2013) TCC 57. 

Turns out, their typical “guy pads” and economic ties in Canada were not enough to establish residency for tax purposes. Whether you are a foreign worker in Canada or a Canadian employed abroad, the analysis in Dysert v. the Queen provides useful information that underscores how to assess and analyze the gray areas that often surround cross-border work assignments. 

In this case, three American citizens appealed their assessments of Canadian income tax for the 2005 and 2006 taxation years, claiming that they were not residents of Canada during those years, and that they should not legally be deemed residents of Canada for those years either.

In order to determine the correct interpretation of their position, the so-called ‘tie-breaker’ rules in Article IV of the Canada-United States Tax Convention (the Treaty) had to be invoked. In analyzing this area of the law, factors such as drivers’ licences, telephone contracts, bank accounts, and housing arrangements all come into play in these types of determinations.  

The three taxpayers provided professional consulting services to Syncrude Canada Ltd. during the period in question and were living in Fort McMurry and Edmonton. They established a limited liability partnership in the United States and this partnership had all bank accounts, records, and offices in America as well. They arrived in Canada with only their suitcases and briefcases. Justice Boyle stated: “they equipped their apartments as men staying alone could be expected to, a bed from The Brick, sparse modest furnishings from IKEA, a work desk or table, and a good-sized television. When they completed their work for Syncrude in 2008, 90% of their Canadian furnishings went to Goodwill or the trash and only their clothes, books and technical manuals, and filing cabinets returned home to the US with them.”

The appellants leased Toyotas from the same dealership, maintained their American licences and did not seek Alberta licences, maintained their cell phones with their US carriers, and maintained their US health and life insurance. The only financial arrangements that they made in Canada were single checking accounts for day-to-day expenses. They visited the US monthly, and their family members only came up North for a couple brief visits to areas such as Banff and Jasper.

In the circumstances, Boyle J found that none of the appellants were residents of Canada for the purposes of the Income Tax Act. Although initially deemed by paragraph 250(1)(a) of the Income Tax Act to have been resident in Canada in 2005 and 2006 by virtue of having sojourned in Canada for 183 days or more, the Treaty was used as a tie-breaker and they were found to factually belong to the United States for taxation purposes.

For Canadians working abroad, in order to avoid Canadian resident status, and thus taxation under the Canadian Income Tax Act, they would have to sever as many ties with Canada as possible. Bank accounts, drivers’ licences, investments, and very importantly residences must be forgone. This is very difficult to do, and therefore tax treaties between nations are usually determinative and help prevent double taxation.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.