What Is Tax Residency?
Tax residency determines which country has the right to tax your income – a concept separate from where you legally live or hold citizenship.
Real-World Example:
Imagine you’re a Canadian professional on a 2-year work assignment in Texas (U.S). The company sponsors your work visa. Your:
- Legal residency to live in the U.S. for those 2 years comes from your U.S. work visa
- Tax residency decides whether you owe taxes to Canada, the U.S., or both
- Citizenship remains Canadian unless you apply to become a US citizen
Most countries have tax treaties to prevent double taxation in these scenarios.
Tax Residency vs. Legal Residency
Legal Residency means:
- Permission to live in a country (through visas, permits, or PR status)
- Can be temporary (student/work visas) or permanent (PR cards)
- Governed by immigration laws
Tax Residency means:
- Where the government expects you to pay income taxes
- Determined by residential ties, financial ties and physical presence
- Governed by tax codes and international agreements
Real-World Example:
You could apply for a program such as Malaysia My Second Home (MM2H) where you gain the legal right to live in Malaysia for a fixed term but you pay your taxes to another country where you have tax residency.
Tax Residency vs. Citizenship
Citizenship (Nationality)
- Legal belonging to a country (unless renounced or revoked)
- Includes the right to live in the country
- You can apply for a passport and may have voting rights
- May entail certain obligations such as military service in some countries
- It is usually what people refer to when they talk about their Nationality (example: I have a US passport and therefore I am American)
Tax Residency
- Purely about taxation obligations
- Can change year-to-year
- No connection to political rights (or responsibilities)
- Most countries use residence-based taxation
How Countries Determine Tax Residency
While it will differ depending on each country, tax authorities like the Canada Revenue Agency (CRA) would look at the following:
Primary Factors:
- Physical Presence: 183+ days/year (varies by country)
- Residential Ties: Home ownership, family location, membership in certain associations
- Economic Ties: Bank accounts, investments, business interests
Case Studies:
The Snowbird (6-8 months abroad)
- Canadian who winters in Arizona purely to escape the horrible Canadian winters
- Keeps Canadian home, bank accounts, and family
- Status: Remains Canadian tax resident
Canadian Working Abroad In Dubai
- Keeps Canadian citizenship (the work assignment itself does not grant UAE citizenship)
- Gains UAE legal residency via work visa
- Likely switches to UAE tax residency (no income tax)
- Status: It could be advantageous to become a tax resident of UAE but there could also be reasons to remain a Canadian tax resident
The Canadian Emigrant (Author of the Site)
- Canadian moves to Hong Kong and the move is expected to be permanent
- Sold Canadian home and car, cancelled health card, transferred most of his wealth over to Hong Kong but keeps Canadian bank accounts
- Has Hong Kong permanent residency
- Declared tax residency as Hong Kong with his Hong Kong banks
- Informed his Canadian financial institutions that he is leaving Canada and that the move is likely permanent
- Status: Solid case that he will be deemed a non-resident of Canada
There are many cases in between. For your specific situation, you best consult with a local expert in your city on what you should do. These examples goes to show that tax residency is a key part of your emigration planning. Even if you are not living in Canada or planning to move to Canada, you may want to study these concepts as most developed countries will have a similar set of rules.
In Canada, the Canada Revenue Agency (CRA) often becomes informed of a change in residency through your financial institution. If you don’t want to continue to get T-Slips from your Canadian banks, you’d inform your banks and go through the procedure to change your status with your banks. The banks will then in turn send a form called RC518 to the Canada Revenue Agency (CRA) to inform them. It is a legal obligation for banks to report tax residency changes to the government and this is true not just for Canada but in most countries.
While the Canada Revenue Agency (CRA) has a form you can complete where they will give an opinion on whether you are a tax resident of Canada, that’s only an opinion. The actual determination of tax residency will boil down to the facts of your situation. Maybe at the time you completed the form you thought you would do this and that, but in reality you did not end up doing so.
Strategic Considerations
High-Tax vs. Low-Tax Countries
- In high-tax assignments (e.g., UK/France), maintaining Canadian tax residency might save money
- In no-tax jurisdictions (e.g., UAE), switching tax residency is usually advantageous
Public Services Access
- Take Ontario, Canada for example. While the province does not specifically say you need to be a tax resident in order to renew your health card, it does say you need to be a resident of Ontario
- While the Canada Revenue Agency (CRA) does not specifically say you must be a tax resident in order to use the health care system, your renewal of your health card could be seen as evidence of retaining residential ties
Banking & Investment Restrictions
- In most countries you are still allowed to bank and hold investments, though with some restrictions
- A common restriction is that your investment account becomes “sell-only” meaning you can’t buy new investments
- You could be subject to withholding tax if you try to take money out
- It’s generally a hassle as you may need to go through extra loop holes when trying to do banking. For example, many banks have a two-factor authentication process and they cannot use a foreign number.
Even if you want to change tax residency, it might not make sense for the very first year of your emigration. It might make sense to change your tax residency only when you’ve settled in and is sure that everything is working out. Remember that tax residency can be different each year and could be determined by both facts and intention. Immediately after you move, you might not even meet the conditions to be a non-tax resident.
Expert Tips
⚠️ The 183-Day Myth: Staying <183 days abroad doesn’t automatically change tax residency – residential and economic ties matter too and tax authorities will review on a case by case basis.
💡 Document Everything: Keep records of travel dates, home rentals, and financial transfers
🔍 Official Resource (if you’re Canadian thinking to leave or if you’re moving to Canada):
Determine Your Tax Residency Status (CRA)