What is the standard for determining when a Canadian citizen is non-resident for tax purposes?
In the leading case of Thomson v. MNR,  CTC 51 (SCC), the Supreme Court of Canada considered the circumstances of a Canadian who sought to become non-resident and established key principles regarding the meaning of “ordinarily resident in Canada,” setting the standard still used by courts today.
Thomson v. MNR
Thomson was a Canadian citizen who lived in Canada until 1922. In 1923, he rented a house in Bermuda and filed an affidavit declaring his intention to establish residence there. After a short initial stay, Thomson spent no more than a few days in Bermuda over the next ten years, and did not return after 1933. In fact, from 1923 onwards, Thomson spent a great deal of time in the United States. He built a house in North Carolina in 1930.
Although Thomson had sold his Canadian house and spent little time in Canada between 1923 and 1932, he returned to spend his summers there starting in 1932. This initially involved rental property, but in 1934 he also acquired a new property in New Brunswick. He established a pattern of spending winters in North Carolina and Florida, and summers in New Brunswick, apparently following the best weather for golfing. Thomson’s family, vehicles, and staff would travel with him on these moves. In no year did he spend more than 183 days in Canada.
The tax year in question was 1940. The dispute arose when the Canadian tax authorities asked Thomson to file a tax return and he refused on the basis that he was non-resident in Canada. The court did not accept Thomson’s argument that he was resident in Bermuda. It was seen as a “pure farce” since he had not actually been there in 7 years.
While the US tax authorities considered Thomson to be resident in the US, the court observed that it is possible to be ordinarily resident in more than one country “if his stay in each is substantial and habitual in the ordinary course of his routine of living.” (This was prior to the execution of a tax treaty between Canada and the US, therefore the current tie-breaker rules addressing dual residence were not considered.)
The court noted that Thomson’s “routine of life” had come to include spending regular time in Canada and that this amounted to a fairly large amount of time each year. Thomson had established a permanent residence, retained servants, and had family ties in Canada. The majority concluded that Thomson was resident in Canada in the year in question.
A dissenting opinion emphasized the period from 1923 to 1932 when Thomson spent little time in Canada and did not own property in Canada. The dissent considered this period sufficient to break residential ties and considered the subsequent time and the new property acquired in Canada insufficient to re-establish residence.
- If the issue of Thomson’s residence had arisen earlier, during the 1923 to 1932 period when he had no property in Canada and his family and possessions were elsewhere, the result would have been non-resident in Canada.
- If Thomson had been a citizen of the United States rather than Canada, the result would not have changed.
- In 37% of cases where the taxpayer’s spouse lived in Canada, the taxpayer was still non-resident. In contrast, the taxpayer was not resident in 60% of cases where the taxpayer’s spouse did not live in Canada.
- In 25% of cases where the taxpayer did not have a permanent house in Canada, they were still resident in Canada.
- 46% of Canadian citizens were not resident whereas 66% of non-citizens were not resident.