7 July 2025 STARI Seminar: The tax residence of individuals under Canada’s Double Tax Agreements: A comparative analysis with other common law countries

The OECD Model Tax Convention on Income and on Capital (the OECD Model) forms the basis for more than 3,000 double tax agreements (DTAs) worldwide. In a very significant case on tax treaty interpretation, the Supreme Court of Canada recognised that the OECD Model ‘served as the basic document of reference in the negotiation, application and interpretation of multilateral or bilateral tax conventions’ (Crown Forest Industries v Canada (1995) 2 SCR 802 [55])(‘Crown Forest’). 

The central premise of our research is that the widespread adoption of the OECD Model by nation States provides the framework for a coherent international tax regime. The consistent interpretation of common DTA terms across jurisdictions would enhance legal certainty for individuals and Governments, and promote more extensive cross-border trade, investment, and employment. It is reasonable to expect that this aspirational goal of consistent meanings for DTA terms would be more attainable among countries that share a common legal tradition. These considerations motivate the present study. We analyse how Canadian courts determine the foundational issue of individual tax residence under Canada’s DTAs, and compare the approaches in other common law countries that have adopted the OECD Model, including the United Kingdom (the UK), Australia, and the United States. 

Establishing tax residence in a contracting State is essential to the operation of DTAs. Both the distributive articles in DTAs, which allocate taxing rights between contracting States, and the protection mechanisms designed to avoid double taxation, depend on the taxpayer being a resident in one contracting State. In this context, Article 4 of the OECD Model (the residence article) plays a critical role. It sets out a hierarchy of ‘tiebreaker’ factors to conclusively determine residence for the purpose of the DTA when an individual is a tax resident under the domestic law of both contracting States. The residence article applies the tiebreakers factors in the following order: (i) the DTA country in which the taxpayer has a ‘permanent home’; (ii) then where their ‘personal and economic relations are closer’ (‘centre of vital interests’); (iii) then the country where they have a ‘habitual abode’; (iv) then their nationality, and (v) finally, by recourse to mutual agreement of the two DTA countries. Canada offers a compelling context in which to examine fundamental questions of tax treaty interpretation. It is a major participant in the global tax treaty network. Following significant domestic reforms in 1976, which expanded exemptions for foreign-sourced income, the number of Canadian DTAs increased ‘exponentially’ (Cockfield, ‘Tax Treaty Disputes in Canada’ in Baistrocchi (ed), Global Analysis of Tax Treaty Disputes (2017) 119). To date, Canada has concluded more than 90 DTAs with other countries. To put this in context, the UK—which has the largest number of DTAs of any country in the world—has around 130 DTAs; the United States has close to 70; and Australia has close to 50. All of Canada’s DTAs are based on the OECD Model. Canada has DTAs with all OECD member countries, as well as economically important non-OECD countries, including China, India, Brazil and Singapore. In practice, Canada’s most important DTA is with the United States. Canada and the United States have one of the largest bilateral trade relationships in the world, and they have a highly integrated labour market. Reflecting the importance of this economic relationship, our research indicates that most disputes on individual tax residence in Canada have arisen under the Canada-United States Income Tax Convention. 

We identify and analyse all decisions in which a determination of individual tax residence under Canada’s DTAs was essential to resolving the dispute. Our main contention is that sound and well-reasoned decisions on taxpayer residence require courts to consider and invoke appropriate authoritative legal sources. We argue that the Supreme Court’s decision in Crown Forest provides a coherent and robust legal framework for the resolution of disputes under the residence article. A hallmark of the Court’s approach is its central reliance on international law principles and sources. In determining the residence of a corporate taxpayer under the Canada-United States Income Tax Convention, and in justifying its approach to treaty interpretation, the Supreme Court drew on the Vienna Convention on the Law of Treaties, the OECD Model and the Commentaries to the OECD Model (the Commentaries), its own prior decisions, decisions of lower Canadian courts, decisions of the US Supreme Court, a decision of the Australian High Court, and the international tax literature. Our analysis of Canadian cases on the residence article shows an increasing reliance on authoritative legal sources over time. All cases were decided by the Tax Court of Canada, with appeals to the Federal Court of Appeal in some instances. Early decisions from the 1990s did not refer to the Commentaries, or any court decisions. Subsequent cases have cited Crown Forest for principles of treaty interpretation but have not engaged with prior decisions that have examined the same tiebreaker factor being considered in the case at hand. Since Lingle v R (2009 TCC 435), which stands out as a well-reasoned decision that had regard to relevant authoritative sources, Canadian courts have more consistently referred to principles of treaty interpretation and to relevant case law on the tiebreaker factor under consideration. American decisions have occasionally been considered, but decisions of UK and Australian courts are not considered or cited. In the Canadian cases we consider, the taxpayer was held to have a permanent home in both contracting States, and this mirrors the position in UK and Australian cases on the residence article. Notably, we identify a striking divergence between the approach in Canada and that in the UK and Australia that cannot be attributed to any difference in treaty language. In around half of Canadian decisions on the residence article, the Tax Court concluded that it was not possible to determine the State where the taxpayer’s personal and economic relations were closer. As a result, the ‘habitual abode’ test became determinative of the taxpayer’s residence. Our paper critically assesses the Canadian courts’ application of both the personal and economic relations test and the habitual abode test, having regard to relevant case law in the UK, Australia and the United States, as well as the work of leading international tax law scholars.