Question Staying in a country for 5.5 months with a tax treaty?

[bnpsu]

For a case like Canada and Thailand, since there is a DTT, in theory, can’t someone stay in Canada for 5.5 months, and Thailand 6.5 months?

It states that this person will be a tax resident of the country that he has a permanent home.

 

[Sols]

While Thailand is quite loose, lenient, and lacking in enforcement, days spent is not a big focus in Canada to determine tax residence. You can be Canadian tax resident simply by having residence available in Canada or other vague connections. Days spent is more of a last resort in Canada, for people who don't tick any other boxes but still spend 183 days in Canada.

The Canada—Thailand tax treaty defines residence as:

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature.

In your case, you are probably tax resident in both according to this clause.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

• a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);
• b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
• c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
• d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Just follow those clauses to figure out where you are tax resident. It wouldn't hurt to have a tax lawyer help you figure out where you would fall in your case.

Based spending 5.5 months per year in Canada, I can see Canada insisting you are tax resident there under a, b, and c, making it up to Thailand to fight for you to be tax resident there instead of Canada.

The term permanent home isn't defined in the treaty. But if you manage to spend 5.5 months in Canada, wherever you've been living might qualify as permanent. And if you're spending nearly equal amounts of time in both countries, it might be hard to convince Canada you have your centre of vital interests in Thailand (why don't you live there all the time if it's your centre?). This takes us to clause 2(c) and habitual abode. We're probably back to 5.5 months being long enough time in Canada that wherever you were staying before counts as a habitual abode.

In the end, you're left with clause 2(d) to save you.

 

[Marzio]

The term permanent home isn't defined in the treaty.

a) he shall be deemed to be a resident of the State in which he has a permanent home available to him.

 

[WorldCitizen99]

I just spoke to a Canadian tax lawyer about this topic yesterday
The wording of the treaty is important - although many contain the standard OECD stuff.
If you meet the local domestic criteria for residency in both countries then it goes to the tiebreaker rule in Article 4, which trumps domestic law.
The key is to HAVE a permanent home available in the other country and to NOT have one in Canada.
Hotels are not considered a PHA but if you were to stay in the same one for the whole time CRA might fight you on that. Airbnbs should be similar.
These standards are a bit annoying bc they aren't well-defined
Avoid signing any leases or rental agreements.
Avoid having a storage locker in Canada.
The lawyer told me staying in a hotel for 1 month would NOT be considered a PHA.
So if you can stay mobile for 5.5 months it should work. It should not even get to the centre of vital interests test.

 

[Sols]

a) he shall be deemed to be a resident of the State in which he has a permanent home available to him.

I'm not sure what your point is. That doesn't define what a permanent home is.

 

[Marzio]

I'm not sure what your point is

I misread what you wrote.

I thought you said that the treaty wasn't mentioning the permanent home criteria when instead you were looking for a definition of the term.

The definition in my experience is pretty standard, it could be something that you own or something that you rented for the entire year

 

[fshore]

What does the treaty say about avoidance of double taxation? If it (as many other DTT) says that the taxes paid in Canada can be offset against taxes owed in Thailand, then it doesn't really help much.

 

[bnpsu]

I just spoke to a Canadian tax lawyer about this topic yesterday
The wording of the treaty is important - although many contain the standard OECD stuff.
If you meet the local domestic criteria for residency in both countries then it goes to the tiebreaker rule in Article 4, which trumps domestic law.
The key is to HAVE a permanent home available in the other country and to NOT have one in Canada.
Hotels are not considered a PHA but if you were to stay in the same one for the whole time CRA might fight you on that. Airbnbs should be similar.
These standards are a bit annoying bc they aren't well-defined
Avoid signing any leases or rental agreements.
Avoid having a storage locker in Canada.
The lawyer told me staying in a hotel for 1 month would NOT be considered a PHA.
So if you can stay mobile for 5.5 months it should work. It should not even get to the centre of vital interests test.

Yeah.. this is what I was asking. In the case you stay 5.5 months in Canada in Airbnbs, and 6.5 months (with a yearly contract), and no other primary ties in Canada.. what would happen..

 

[Marzio]

what would happen..

If you don't have any tie to Canada you'll be considered Thai tax resident

 

[WorldCitizen99]

Yeah.. this is what I was asking. In the case you stay 5.5 months in Canada in Airbnbs, and 6.5 months (with a yearly contract), and no other primary ties in Canada.. what would happen..

According to him, as long as you stay less than 6months and stay in accommodations that are not regarded as PHAs, like hotels the whole time, you would remain non-res of Canada and only be taxable on Canadian-source income, and not on your world-wide income for the whole year.
But there may be anti-avoidance (GAAR) clauses and the above may be nullified by these if CRA thinks you are just setting yourself up to avoid taxes. The whole issue is complex and evolving - I believe there were some proposed changes in Freeland's latest budget.
So obviously, get an independent legal opinion based on your own circumstances before making any decisions.

 

[Mr Gus]

According to him, as long as you stay less than 6months and stay in accommodations that are not regarded as PHAs, like hotels the whole time, you would remain non-res of Canada and only be taxable on Canadian-source income, and not on your world-wide income for the whole year.
But there may be anti-avoidance (GAAR) clauses and the above may be nullified by these if CRA thinks you are just setting yourself up to avoid taxes. The whole issue is complex and evolving - I believe there were some proposed changes in Freeland's latest budget.
So obviously, get an independent legal opinion based on your own circumstances before making any decisions.

Yes that is correct, make sure to document everything very well..

You can indeed stay in Canada 5.5 months if you have a permanent home in the other country the whole year, however what are you going to do the whole 5.5 months you are in Canada? If you have a business and are a sole director and work from Canada the company could be deemed tax resident in Canada.