# Tax residency based on residential ties



## AllHeart (Nov 22, 2013)

Hi. I'm hoping someone can help me out here. I brought this up in another thread a long time ago, but never pursued clarification, so I hope to get it here. Canada bases its tax residency on two issues, and so does Spain. These two issues are if you have been in the country for more than 183 days, and your centre of activity (AKA residential ties). Here is what the Hacienda says (I count #3 as residential ties, which Canada calls residential ties):

_An individual is resident in Spanish territory when any one of the following circumstances apply: 

1. They have stayed longer than 183 days in Spanish territory over the calendar year. In order to determine the permanence in Spanish territory, occasional absences are included, except if the taxpayer accredits their residency in another country. In the case of countries or territories labelled as tax havens, the Tax Administration can demand proof of stay in that tax haven over a period of 183 days within the calendar year.

2. They situate the main base or centre of their activities or economic activities, directly or indirectly, in Spain.

3. They have dependent not legally separated spouse and/or underage children who are usually resident in Spain. This latter situation accepts evidence to the contrary._

The above is copied from here: Tax Agency - Individual resident in Spain

This is where Canada has assured me that I will be considered a non-resident of Canada, because I left virtually no ties in Canada, but have all my residential ties here in Spain.

Here is another place the Hacienda talks about this:

_What happens when we have to apply the internal laws of Spain and another country as an individual is a resident of both?

In these cases, the agreement or treaty between the two countries should be consulted, if one is in place. These treaties establish rules to prevent that a person is considered a resident of both countries from a taxation viewpoint. In general, these rules state that an individual is a resident: 

1. Of the country where he or she has a permanent residence. If he or she has a permanent residence in both countries, they are considered a resident of the country with which they hold the closest personal and economic ties.

2. If the above criterion does not determine residence, the individual is considered resident in the country where he or she usually lives.

3. If the individual lives habitually in neither or both, they are a resident of the country that gave them their nationality.

4. If they have dual nationality of both countries, or of neither, the Authorities in question will resolve the case by mutual agreement._

The above is copied from here: Tax Agency - Residence in two countries

When I went down to the Hacienda, I only spoke to the people at the front desk, who didn't know anything about anything but for the 183-day rule. But I know my own ignorance or saying that the teller was ignorant of the laws is not any defense. So I have to get this right for my own sake.

According to the tax treaty between Spain and Canada, I will be deemed a resident of Canada or Spain, and cannot be a non-resident of both countries. This is under Article IV, fiscal domicile.

_Article IV

Fiscal Domicile

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

2.Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then this case shall be determined in accordance with the following rules:a.he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (hereinafter referred to as his “centre of vital interests”);_

The above was copied from here: Canada Treaty Information - View Treaty - E102340

Canada has legislation that determines residency, which clearly shows that I will be deened a non-resident of Canada. This legislation is found here (not that you need to look at this, but just in case anyone is interested): Income Tax Folio: S5-F1-C1, Determining an Individual's Residence Status

Canada also has an actual form to fill out for them to determine where your residential ties are, which is located here (in case anyone is interested): http://www.cra-arc.gc.ca/E/pbg/tf/nr73/nr73-12e.pdf

So based on the above, I'm almost 100% positive that I became a non-resident of Canada and a resident of Spain when I arrived here on September 2, 2014. My question is, is there a form similar to what Canada has to determine residency/non-residency in Spain based on residential ties? The reason I ask is that I will not find out from Canada until mid-April as to their decision, but if I am indeed a resident of Spain now, I need to fill out the Form 720 for overseas assets, and I can't afford the holy-crap fine for not filing. So your help would be most appreciated. If there is such a residency form, I need to fill it out and go down to the Haciendo pronto because I don't have the luxury of waiting for Canada's decision with the Form 720 March 31 deadline! 

Thank you if you have even tried to read this.


----------



## VinhoVerde (May 2, 2014)

Hello AH,
I'm expecting to go through these interminable and abominable documents myself soon...
But, a quick reading suggests that you may want to consider that since arrival in Sept 2014 you cannot have spent more than 183 days in 2014 in Spain - hence I'd wager that you would not be considered a tax resident of Spain for 2014. You will be for 2015, I assume , and that will have to be dealt with in 2016 when you are likely to have an answer from the Canadian authorities. 

It seems to me that there is some differentiation to be made between a 'territorial resident' and a 'tax resident' as these come under the purview of different authorities in the same country, each with different requirements.

Anyways, let us know if you get the issue resolved! Best of luck!
VV


----------



## larryzx (Jul 2, 2014)

VinhoVerde said:


> . and that will have to be dealt with in 2016 when you are likely to have an answer from the Canadian authorities.
> 
> It seems to me that there is some differentiation to be made between a 'territorial resident' and a 'tax resident' as these come under the purview of different authorities in the same country, each with different requirements.


Note that the Double taxation Agreement between Canada and Spain, as with those between Spain and other countries, are different for each country. Thus one cannot apply what happens (the rules) say between Canada and Spain with that between UK and Spain.

On the point of when one becomes tax resident. 

If one moves (i.e. permanently, lock, stock and barrel, maybe takes a job etc.) to Spain on say 1st September 2014, then my understanding is that they are then tax resident immediately and thus would be required to make a tax declaration for 2014 in May/June 2015.

The 183 days rule only applies to those who do not make a clear move, but nevertheless, stay for that period in any calendar year.

I look forward to views on this, and maybe the actual law would be helpful, as I believe many do not appreciate the possibility of becoming immediately tax resident from the first day of arrival.


----------



## AllHeart (Nov 22, 2013)

larryzx said:


> Note that the Double taxation Agreement between Canada and Spain, as with those between Spain and other countries, are different for each country. Thus one cannot apply what happens (the rules) say between Canada and Spain with that between UK and Spain.
> 
> On the point of when one becomes tax resident.
> 
> ...


Hi Larryzx. That's exactly what I said in my first post. This is nicely put in plain English. 

So I just got back from the Hacienda. I spoke to a first-line agent, who again cited the 183-day rules, and she said there's no such thing as what I was talking about. I insisted that I had read that info on their site, and she insisted that it wasn't true. So it was the same as last time. So I dug in my heels and explained over and over again. Finally she said she would have her boss talk to me. So we met, and he said that it's true that I am in fact a tax resident of Spain based on my centre of activities being here in Spain - with all the above info I provided in my first post. So as of September 2, 2014, when I landed in Spain, I have been a tax resident of Spain. He said I have to file the Modelo 720 form before March 31 and I have to file my taxes for Spain in June for the part of the year in 2014 that I was a tax resident of Spain, i.e. Sep 2 to Dec 31.


----------



## AllHeart (Nov 22, 2013)

VinhoVerde said:


> Hello AH,
> I'm expecting to go through these interminable and abominable documents myself soon...
> But, a quick reading suggests that you may want to consider that since arrival in Sept 2014 you cannot have spent more than 183 days in 2014 in Spain - hence I'd wager that you would not be considered a tax resident of Spain for 2014. You will be for 2015, I assume , and that will have to be dealt with in 2016 when you are likely to have an answer from the Canadian authorities.
> 
> ...


Hi VinhoVerde. It's either 183 days or no residential ties.

Yes, tax resident is different from what you call a territorial resident (having a residence). What I cited above is requirements for tax residency.


----------



## VinhoVerde (May 2, 2014)

Thanks to both of you for clearing that up. I read the Canada/Portugal treaty and could not discern a clear description of when residency ceased/took effect. Knowing what you have uncovered may apply to me and I find it helpful to be aware of.
AH: if you could do it over and had the freedom to make a different choice, would you have chosen to start residency on 1 January 2015 instead? Or some other option? I'm asking because:
1. a fragmented tax year may cause tax return headaches that would not otherwise exist (at least to the same extent), and 
2. non-standard tax returns may create additional risks of bureaucratic bungling that may take a long time to sort out. 
(It always strikes me as ironic that people often retire to sunny countries just to discover that their time, funds, and energies get consumed with red tape of some description that effectively reduces their quality of life in said sunny countries...)
VV


----------



## AllHeart (Nov 22, 2013)

VinhoVerde said:


> Thanks to both of you for clearing that up. I read the Canada/Portugal treaty and could not discern a clear description of when residency ceased/took effect. Knowing what you have uncovered may apply to me and I find it helpful to be aware of.
> AH: if you could do it over and had the freedom to make a different choice, would you have chosen to start residency on 1 January 2015 instead? Or some other option? I'm asking because:
> 1. a fragmented tax year may cause tax return headaches that would not otherwise exist (at least to the same extent), and
> 2. non-standard tax returns may create additional risks of bureaucratic bungling that may take a long time to sort out.
> ...


You're welcome. 

Have you tried the Portugal forum here for clarification? Or have you tried the Consulate of Portugal? The rules of Canada are outlined for all countries in their residency determination. The link to the form I gave above is not just for Spain; it is a federal form (all of Canada) for all countries, such as Spain, Portugal, England, Costa Rica, etc. Similarly, the rules for Spain that I gave are for all of Spain for all countries - not just Canada. The tax treaty between Canada and Spain was just to show that Canada and Spain have the same rules.

If I had to do it all over again? Yes, I would still move here in a broken tax year in a heartbeat, as quickly as possible, which is what I did - even though it's complicated my tax situation, as you describe. The tax year is a minor point in the grand scheme of the long, long list of reasons I moved to Spain. I guess I haven't told you that I love Spain.  Are you enjoying Portugal?


----------



## AllHeart (Nov 22, 2013)

VinhoVerder, I think you're right, that you're in the same situation as me, as I just took a look at the Portugal-Canada tax treaty. This is laid out in Article 4.2 of the tax treaty. 

The way a guy at Revenue Canada explained it to me is that each country has its rules on tax residency, and any discrepancies and specifics are hammered out between two countries through tax treaties. Sometimes there are discrepancies and sometimes there aren't. He used the US as an example for a discrepancy, saying that the US tax residency is based on citizenship, so that regardless of where an American lives, they have are tax residents of the US. I don't know if that's true, but that's he what he said. As you know, I'm just a layperson like you describing this. But I hope that helps you out. 

BTW, this is the Portugal-Canada tax treaty that I looked at: Convention Between Canada and the Portuguese Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income


----------



## VinhoVerde (May 2, 2014)

Yes, that's the one. Thanks again for clearing that up. Think I may delay the jump from I Sept. 2015 to 1 Jan. 2016 though. Glad you like Spain - Portugal is nice too, but with a quieter heartbeat.


----------



## AllHeart (Nov 22, 2013)

You're most welcome.


----------

