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Pilot Flies Away from the CRA: Canadian Tax Residency (Part 2)

CompassPOINTS - March 2007

By Diana Matwichuk, Manager Assignment Planning Services

Our November 2006 article about an airline pilot who had wrangled with the Canada Revenue Agency (“CRA”) over Canadian tax residency status, and lost, admittedly bordered on tax court tabloid. In this issue, we revisit the topic to highlight the fact that (1) there can be happy endings to even the bitterest of tax residency debates, and (2) expatriate taxation can be an interesting read.

Taking the spotlight in this month’s feature drama is Canadian pilot Mr. L, in “Laurin vs. the Queen” (2006). Lurid details will be omitted, but the message prevails … encourage your expatriate employees to plan, plan, plan their Canadian tax affairs well before departure.

The Facts

Mr. L. was a senior pilot with a Canadian airline during the 1996 – 2000 tax years in question. In 1990, he jointly built a house in St. Lazare, Quebec with his girlfriend, and effectively entered a common-law arrangement. When the relationship soured in 1993, Mr. L. asked the girlfriend to accompany him offshore, but she refused.

The relationship ended and Mr. L moved to Belize. He sold his portion of the house to the girlfriend, cancelled his health and car insurance, closed his Canadian bank accounts (except for those required for paycheque deposit), sold his car, and exchanged his driver’s license for an Ameri can one.

In 1996, Mr. L. established residential ties in Turks and Caicos (“TCI”). He purchased annual TCI residency permits, leased a furnished apartment there with two other airline pilots, and co-purchased a vehicle for shipment to the TCI. Mr. L. also established Ameri can cellphone coverage, routed mail to the address of a friend in Florida, and established investments in TCI.

Mr. L. continued to fly Canadian-based routes, and therefore had to spend time in Vancouver, Toronto and Winnipeg for work obligations. He did not spend more than 183 days in Canada during any of the tax years in question, regardless of the method one chooses to “count a day”.

Mr. L. assumed that he had satisfied any and all requirements in order to be considered Canadian tax non-resident. The CRA apparently viewed the situation differently.

The Other Facts

Mr. L. only took two large suitcases with him to Belize, and brought no furnishings with him to TCI. He returned to Montreal on numerous occasions, and stayed with family and friends. Mr. L.’s three sons from his two previous marriages also lived in Quebec.

Further, Mr. L. resumed his relationship with the girlfriend during the tax years in question. She began traveling with him in 1997 to various parts of the world on his pilot’s pass. Not surprisingly, one of the CRA’s main points in this case was the assumption that Mr. L. therefore had the St. Lazare home available to him during the tax years.

Editorial Comment

Now, at what point should the line be drawn between tax issues and personal affairs? Just how far should the CRA be let into the intimate details of taxpayers’ personal lives?

The Defense

Mr. L. did not visit the St. Lazare house after he left in 1993, and he and the girlfriend were not in a common-law relationship during the tax years in question. Full stop. He never established himself at any of the houses that he visited in Montreal - he always brought with him clothes and other necessities. Further, Mr. L. rarely visited his sons in Quebec. Rather, they visited him in TCI.

Per the Defense, “residual friendships and employment connections do not create residency”.

The Clincher

Canada does not have a tax treaty with TCI. Without treaty protection, it is possible to be deemed a Canadian resident for tax purposes, while at the same time being resident of another country. According to the Income Tax Act of Canada, this hinges on whether the individual was at the time “ordinarily resident” in Canada.

The CRA Attack: “Ordinarily Resident”

Mr. L.’s case eventually drilled down to the Oxford Dictionary level. It was argued that “Ordinarily Resident” should be interpreted as regularly being in particular “spatial bounds” [implied: Montreal], rather than necessarily, any particular “dwelling”.

And it was counter-argued, with various phrase/word definitions, that “Ordinarily Resident” refers to “as a matter of regular occurrence” …. “settling into … [a usual] mode of living”.

“Permanent” residence, “temporary” residence, “ordinary” residence, “principal” residence. Anyone for a friendly game of Scrabble?

The Ruling

It was determined that the taxpayer did indeed sever his residential ties to Canada, that unlike other cases, Mr. L.’s connections to Canada did not amount to “ordinary residence”, and that he was therefore non-resident for Canadian tax purposes during the 1996-2000 timeframe.

Happy ending.

In Summary

Expatriate employees embarking on an international assignment have much to consider regarding their tax issues, and much is at stake if the CRA were to challenge their tax residency status. Hindsight is 20-20, but this explanation pales when used to justify the lost productivity at the worksite that could result from having to defend oneself before the tax courts. Not to mention the employee’s frustration and woe at potentially being hit with penalties and interest, and/or a surprise tax obligation on worldwide income as a result of not adequately severing residential ties to Canada.

Our mission at CompassGUIDES is to help companies roll out assignments which are positive experiences for their assigned workers and their families. We encourage corporations to provide their expatriate employees with an Assignment Tax Program that covers all of these details and helps them to approach their assignment from a planned tax perspective.

For more information about international assignment planning and the publications and services which CompassGUIDES offers to multi-national employers, visit our website at

Thanks to Peter J. Simpson, C.A. for his contributions to this article.


Tel: (403) 531-2200 
Fax: (403) 263-1826

Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6

Tel: (403) 531-2200 
Fax: (403) 263-1826

Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6