Retired to Portugal, Reassessed by CRA: Winning a Residency Fight

The situation

Bohdan spent thirty years building a book of investment advisory clients in Etobicoke before selling the practice and retiring at sixty-one. His wife Iryna, a surgeon, cut back her hospital privileges around the same time. Their plan was straightforward: spend most of the year in Portugal, where they had bought a small house two years earlier, and use their Etobicoke property for visits with their adult daughter Angela and her children. They filed as non-residents of Canada starting the year they moved, reporting only their Canadian-source income — pension income and a rental property — on their Canadian returns.

Two years later, a CRA residency review letter arrived. The reviewing officer's position was that Bohdan and Iryna had never stopped being factual residents of Canada for tax purposes. Their Etobicoke house had not been rented out on a long-term lease and remained available to them. Both still held Ontario health coverage and driver's licences. Their investment accounts, much of their banking, and Iryna's professional college registration were all still in Ontario. On that basis, CRA proposed to reassess three tax years and tax their full worldwide income — including Iryna's remaining surgical billings, investment income, and capital gains realized on Bohdan's portfolio — as Canadian residents. The reassessments, once calculated, put roughly $700,000 in additional tax in dispute.

The legal problem

Residency for Canadian tax purposes is not a single test with a checklist that gives a clean answer. Under Canadian domestic law, a person can be a factual resident of Canada even after leaving the country, if they retain significant residential ties — a home available for their use, a spouse or dependents living in Canada, or other connections such as health coverage, memberships, or professional licensing. CRA's residency review had identified exactly the kind of ties that support a factual residency finding, and on the strength of those ties alone, the couple's non-resident filing position was in real trouble.

The complication that also became the way out was that Portugal, under its own domestic law, treated Bohdan and Iryna as tax residents there as well. They had registered with Portuguese authorities, obtained Portuguese tax numbers, and lived in the country for most of each year. That created a genuine case of dual residency — both Canada and Portugal had a good domestic-law argument that the couple belonged to them. Canada's tax treaty with Portugal exists precisely for this situation. Where a treaty applies and a person is resident in both countries under each country's domestic rules, the treaty's tie-breaker provisions step in and assign residency to only one of the two countries for treaty purposes, overriding the domestic result. The tie-breaker works through an ordered set of tests: first, in which country the person has a permanent home available to them; if available in both, in which country their personal and economic relations are closer (their “centre of vital interests”); if that is unclear, where they habitually live; and only after that, nationality. CRA's residency review had applied Canadian domestic law and stopped there. It had not addressed the treaty tie-breaker at all — and the tie-breaker, applied properly, pointed toward Portugal for two of the three years in dispute.

What we did

1. Mapped the couple's ties on both sides of the ledger. Rather than arguing the Canadian ties away, our team accepted that CRA's factual residency finding under domestic law was arguable and shifted the fight to the treaty. We built a detailed timeline and evidence file of the couple's Portuguese ties: the permanent home they owned and occupied there, Portuguese tax and health registrations, the bulk of their day-to-day banking and living expenses, and the months of each year actually spent in each country.
2. Built the tie-breaker case in the correct order. Because the couple had a permanent home available in both countries — the Etobicoke house had not been fully let go — the first tie-breaker test did not resolve the question on its own. The stronger argument sat at the second stage: centre of vital interests. We assembled evidence that once the Portugal move was established, the couple's day-to-day economic and personal life — their primary residence, most of their time, Iryna's reduced practice, their social and community connections — had shifted to Portugal, even though some Canadian ties remained on paper.
3. Drew a clear line at when the shift actually happened. The evidence did not support treaty non-residency for the full three years. In the first of the three reassessed years, the couple had spent significant time in Canada still winding down Bohdan's practice transition and had not yet established the pattern of life in Portugal that the tie-breaker argument depended on. We were candid with the client that this transition-year period was a weaker argument and should not be overstated in the objection.
4. Filed a formal notice of objection. This is the mechanism for disputing a CRA reassessment before it becomes final: a written objection setting out the facts and legal basis for disagreement, filed with CRA's appeals division within the required deadline. Ours set out the dual-residency fact pattern, the treaty tie-breaker analysis, and the supporting documentary record for each of the three years separately, rather than treating the period as one block.
5. Worked the file through CRA appeals. An appeals officer, independent of the original reviewing officer, reconsidered the reassessment. We responded to follow-up questions about specific ties — particularly the Ontario health coverage and the Etobicoke house — with documentation showing when each tie was reduced or ended, keeping the timeline consistent with the treaty argument rather than letting it blur.

The outcome

CRA appeals accepted the treaty tie-breaker analysis for the second and third of the three reassessed years, agreeing that Bohdan and Iryna's centre of vital interests had shifted to Portugal once their move was fully established. The reassessments for those two years, representing the bulk of the roughly $700,000 originally at issue, were vacated. For the first year — the transition period we had flagged from the outset as a weaker argument — CRA maintained a reduced assessment covering the months before the move was complete, coming in at roughly $60,000. The net result was a reduction of about $640,000 from the original reassessment, with the couple's Portuguese tax filings for those years standing as their governing return.

Iryna later said the hardest part of the process was not the legal argument but sitting through months of uncertainty without knowing which way it would go, while continuing to file and live as non-residents in the meantime. The couple has since formally severed the remaining Canadian ties that had exposed them — converting the Ontario health coverage to visitor status and moving the Etobicoke house to a standard long-term rental — so that a future residency review would not face the same dual-residency question at all.

The financial stakes made the dispute worth fighting properly rather than settling early on CRA's initial position. A weaker or less organized objection risks the appeals officer treating the whole three-year period as one undifferentiated block, which would have left the couple facing tax on the full $700,000 rather than the roughly $60,000 that ultimately reflected the genuine transition period. Separating the years and being precise about when each Canadian tie actually ended made the difference between a partial result and the clear reduction the couple achieved.

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