Interprovincial Taxation: The Importance Of Severing Residential Ties On Departure

The place of residence of an individual is a fundamental tax concept which determines, among other things, his liability for provincial income tax. under the Taxation Act,¹ an individual is subject to tax for a given year if he resides in Quebec on December 31 of that year. the tax base then consists of the individual's income from all sources, except for business income from a Canadian establishment situated outside Quebec.

The fact that an individual moves from a province to another usually results in a change of his place of residence for provincial tax purposes. However, it may happen that some residential ties with the province of origin remain, with unanticipated and unwanted results, as shown by a recent decision of the Court of Quebec in the case of Perron c. L'Agence du revenu du Québec.²

In that case, the taxpayer was challenging assessments made by revenu Québec for taxation years 2005 to 2007, arguing that he was a resident of Alberta during the relevant period. the taxpayer, an engineer, had held various positions in Quebec prior to moving in Alberta in May 2005 after finding permanent employment there. From that time on, the taxpayer had rented a dwelling unit in Alberta and had purchased furniture for it. He also had opened a bank account and became a member of the Association of Professional engineers and Geoscientists of Alberta.

However, the taxpayer had retained several residential ties with Quebec during years 2005 to 2007, particularly the following:

1. His spouse, to whom he was married since 1985, and his son had continued residing in Quebec despite the departure of the taxpayer for Alberta. the taxpayer was neither divorced or separated under a judgment or a written agreement.
2. the taxpayer had remained co-owner with his spouse of the family residence located in Beauport.
3. the taxpayer had continued to provide for the financial needs of his son and to assume certain maintenance expenses of the residence located in Quebec.
4. the taxpayer had stayed in Quebec every three months for periods of four or five days. When doing so, he was staying at his residence in Beauport.
5. the taxpayer had retained his Quebec driver's licence and maintained is eligibility to the Quebec health insurance regime.
6. the taxpayer had remained a member of the Ordre des ingénieurs du Québec.
7. the taxpayer had continued to use the postal address of his Beauport residence, particularly with respect to his credit cards.
8. the taxpayer was the owner of a vehicle registered in Quebec, which he had given to his son in 2009.

The Court determined that the taxpayer had provided prima facie evidence that his tax residence was located in Alberta during years 2005 to 2007, particularly by establishing the permanent nature of his position in Alberta and the low frequency of his visits in Quebec. the tax authorities thus had the burden to prove that the residence of the taxpayer had remained in Quebec.

After reviewing the case law, the Court concluded that revenu Québec had established, by preponderance of evidence, that the taxpayer had retained his tax residence in Quebec during the disputed period by reason of the absence of severance of residential ties with Quebec.

The judge particularly noted the absence of evidence corroborating the separation between the taxpayer and his spouse. According to the Court, several factors rather indicated that the spousal link was maintained between them. In addition, the taxpayer failed to establish sufficient connection to Alberta, except for his employment.

This decision of the Court of Quebec, which was not appealed, underlines the importance of severing all residential ties with Quebec when moving to another province, particularly if the tax regime of the other province is less onerous. the place of residence is a complex issue which has to be decided according to the legislation in force and applicable case law. Any individual who maintains a more or less important presence in more than one province would be well-advised to consult a professional in this respect.

Footnotes

1 RLRQ RSQRE c. I-3.

2 2013 QCCQ 3271.

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