deemed resident versus factual resident -

Dear Sir or Madam,
I came across your email address while researching on line for
information about my residency status. I am wondering if your service
is available concerning the definition of my status.
 I am a Canadian citizen and a teacher working in China currently
finishing off the end of a contract. I have been working here since
December 15, 2006. I have a leave every summer which I spend in Canada
(approximately 7 weeks) and I own a condo in Victoria which is rented
out.
 I plan to return to live permanently in Canada in July 2010. I
believe I am what is called a factual resident because I have
residential ties (my condo), but also because I have a bank account
and family in Canada. My parents receive my mail and forward whatever
must be dealt with. I pay taxes to both China and Canada.
My question is whether I am correct in defining myself as a factual
resident and NOT as a non-resident.
Please let me know if you can or cannot help me with this question. (I
do not want to be defined as a non-resident.)
Thank you for your time,


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david ingram replies:

I agree - you are a factual resident subject to the terms of the Canada China Income Tax Treaty.  Your tax return should show all of your world income including your Chinese earnings and then deduct the Chinese earnings on line 256 under Article IV of the Treaty.

The advantage of this is that it leaves you free to rent out your Condo for four years plus one without having to pay capital gains tax when you move back in. 

Your Canadian return should not be a section 216(4) and you should not be filing an NR-6

Article IV reads as follows

Article 4

Resident

1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of head office, 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 his status shall be determined as follows:

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 closer (centre of vital interests);

b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of this Agreement to such person.

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