05 September 2016

Domicile: it still matters

Depending upon the nature of the critical event, and where it took place, the question will arise as to whether you should take into account a person's:
  • residence;
  • citizenship; or
  • domicile.
The last factor will strike some as rather surprising, but it can have surprising results. I will discuss this first, and address the others in separate entries.

Why domicile matters

The general rule

A person can only have one domicile at any given time, which signifies where his permanent home will be for the foreseeable future.  The domicile of origin is acquired at birth. That continues until the age of majority is reached, at which time he (or she) can adopt a domicile of choice. That arises from permanently moving to a new place, and being legally able to do so. Therefore, you cannot permanently move to a new country if you only have a temporary visa to go there, or if you are only attending a post-secondary institution. Neither the intent nor the ability are there. The domicile of choice can revert back to the domicile of origin when you permanently move away from the latter without yet establishing a new permanent home. This can get ugly, especially when more than two jurisdictions come into play, as seen in an Alberta case in 2011.

There is also a domicile of dependency, is conferred on legally dependent persons by operation of law. It will be that of the person on whom the person is dependent, and will change when that latter person's domicile changes. This currently extends only to people who are mentally incapable.

Domicile is normally that of the nation, but it is normally that of the Province or State in ones that are organized in a federal structure. In the United Kingdom, domicile exists in England and Wales, Scotland, or Northern Ireland, and the Isle of Man and the Channel Islands of Jersey and Guernsey (all being Crown dependencies) have separate domiciles as well

The historical rule

Historically, at birth, a child acquired the domicile of its father where the father was still alive at the time of birth. Otherwise, it will acquire the mother's domicile if the father is no longer alive, or if it is born out of wedlock. Where there were no known parents, as in the case of a foundling, the domicile will be that in which the child was found.

The doctrine of dependency extended to married women, who acquired the husband's domicile upon marriage, and to minors (then called infants) who took on the relevant parent's subsequent domicile of choice.

Perverse effects of the rule

Here is a relatively simple application of the rules. A person is born in Ontario, whose father was then working in Canada on a temporary work visa. The father then decides to become a landed immigrant, and settles in Ontario permanently. Upon attaining the age of majority, the child then decides to leave Ontario, but dies before being able to establish a permanent home elsewhere. In which jurisdiction should the child's will be probated?

It would be England. The child's domicile of origin is England, because his father was not able to establish an Ontario domicile by the time of the birth. The child would then acquire a domicile of dependency at the time the father became a landed immigrant. However, when the child leaves to seek his fortune elsewhere, his domicile will revert to his domicile of origin, and will remain that way until a new domicile of choice has been established. And that can happen even if the child has never set foot in England!

There is another example I can across which is even more over the top but still accurate. A goes from England (in which he is domiciled) to India, intending to return to England when he reaches 60 after having made his fortune. He marries in India and has child B there, who grows up with similar intentions. A dies in India. B marries in India as well and has child C there, who grows up with similar intentions as well. B dies in India.

C's domicile is in England. This is because domicile arises from permanent intentions, as well as permanent presence in a particular place. Because A always intended to return to England, India never became a domicile of choice. B's domicile of origin therefore was England and, because he always intended to go to England to retire, India never became a domicile of choice either, and therefore C's domicile of origin is England as well. This could extend indefinitely, as long as each generation desires to eventually move to England eventually, and thus decides not to make India the domicile of choice once the age of majority is reached.

Effect on marriage and death

A valid marriage depends on two components: It has to be valid under the law where the ceremony is performed, and it has to be valid under the law of the parties’ ante-nuptial domicile. If crossing borders may be involved, it is still a good idea to double-check the rules of each jurisdiction before you go ahead.

Under current law, a Canadian divorce is effective if one of the parties has been resident in a province for at least one year. From 1968 to 1986, there had been an additional requirement that the petitioner had to have been domiciled in Canada. Prior to 1968, the requirement was for domicile in a province where divorce was available (which ruled out proceedings in Quebec and Newfoundland).

If annulment is sought, the grounds become murkier. Generally speaking, a wife can gain a domicile of choice and then petition to annual a void marriage (on grounds of consanguinity, being underage, or bigamy). However, she can only petition in a court in her husband's domicile where the marriage is voidable (because of lack of valid consent or the marriage not being consummated).

The other area where domicile is important in Canada is when a person dies, and his estate is governed by the law governing his domicile at that time in all respects other than for real (or immoveable) property situated beyond its borders.

Reform of the law in Ontario

Ontario has simplified the law of domicile in several stages. In 1958, the adoption laws were changed to effectively provide that an adoptee's domicile of origin would become that of his adoptive parents as if born in wedlock, and that came into force on 1 January 1959.

The age of majority was reduced from 21 to 18 effective 1 September 1971. This was followed by the abolition of illegitimacy effective 31 March 1978. On the same date, s. 68 of the Family Law Reform Act, 1978 granted separate legal personality for married women, and simplified the law of domicile as it applied to minors:

68. Subject to subsection 2, a child who is a minor, 

(a) takes the domicile of his or her parents, where both parents have a common domicile; 
(b) takes the domicile of the parent with whom the child habitually resides, where the child resides with one parent only; 
(c) takes the domicile of the father, where the domicile of the child cannot be determined under clause a or b; or 
(d) takes the domicile of the mother, where the domicile of the child cannot be determined under clause c . 

(2) The domicile of a minor who is or has been a spouse shall be determined as if the minor were of full age.

The latest rule is found at s. 67 of the Family Law Act, effective 1 March 1986:

67. The domicile of a person who is a minor is, 

(a) if the minor habitually resides with both parents and the parents have a common domicile, that domicile; 
(b) if the minor habitually resides with one parent only, that parent’s domicile; 
(c) if the minor resides with another person who has lawful custody of him or her, that person’s domicile; or 
(d) if the minor’s domicile cannot be determined under clause (a), (b) or (c), the jurisdiction with which the minor has the closest connection.


Legal impact

You can see that most of the reforms have been to domicile by dependency. Domicile of origin, together with the doctrine of reversion, has remained essentially intact.

The 1978 reform relating to illegitimacy appears to have been retrospective. The following key dates appear to be prospective only:
  • 1 January 1959: replacement of domicile of origin upon adoption.
  • 1 September 1971: ability of those between 18 and 21 to acquire a domicile of choice.
  • 31 March 1978: the ability of married women to acquire a separate domicile of choice.
The effect of the reforms relating to the domicile of minors appears to merely displace the effects of the existing common law rules on domicile of dependency.

Does it matter anywhere else?

Are there other instances where domicile may become a concern? The answer is yes, and more than you might realize:
  • Many US states use domicile to determine liability for their income taxes, including New York and California, and residency is used as a position to sweep in other potential taxpayers within its scope.
  • The US has a federal estate tax in which US domicile attracts liability on the value of the worldwide estate, while non-residents face liability only on the value of property located within the US. Most States have similar provisions.
  • The UK uses domicile to determine liability for its inheritance tax. In fact, its scope only excludes those estates where domicile is outside the UK, and there are no UK assets in it. Domicile has historically been the basis for its income tax, but the UK has significantly expanded its statutory residence tests to widen the scope for collection, and those taxpayers who are UK-resident but not so domiciled must pay a significant levy to protect their previous status.
  • Australia gives priority to domicile in its income tax system.
Those are the most relevant cases for Canadians to think about, but other nations have their own unique rules which may catch people unawares. For instance, I do not know anything about how China (as in the PRC) would affect Chinese-Canadians, so experts in that field would need to be consulted if circumstances warrant.

01 September 2016


I've been digging into some personal history lately, after having heard that several people I knew back in the early 1980s have recently passed away. I worked with them in a company that had a wonderful work ethic and environment, that also made a lot of money. It no longer exists, because of events that overtook it then, but the perpetrators themselves are no more.

I have written about Canadian Glass Industries Limited before, on another blog. However, how it collapsed would provide a great case study. I will just give a broad outline of it here.

Canadian Glass was previously known as Glaverbel Industries Inc, and it was taken over by Pilkington Glass Industries Limited (then a subsidiary of Pilkington plc) in 1976. As a condition of its acquisition, Pilks was required to keep Canadian Glass at arm's length to determine its own strategy and direction. The head office was moved to Toronto in 1979, and it occupied premises separate from Pilks, although only several blocks apart. The acquisition did reveal several surprises, such as the fact that CGIL could borrow money at prime, but PGIL had to pay prime plus 1! That was the first of several embarrassments, including the equally unavoidable fact that CGIL was a much more profitable operation. PGIL's Contract Division was its only operation elsewhere in the group that even came close to matching those results.

I joined Canadian Glass as its Corporate Controller in September 1980, and enjoyed it immensely. The job had broad scope, I had full responsibility for issuing consolidate financial results and preparing and filing all corporate and capital tax returns, and I was required to travel to all divisions across Canada to check on how things were happening out in the field. I got along well with everyone there, and the feeling was mutual, as my boss soon advised me.

In December 1980, Ford Motor Company reached an agreement with Pilks plc to acquire its Canadian operations. As part of its negotiations with Ottawa, Ford got the conditions relating to the 1979 Glaverbel acquisition cancelled. Ford's takeover occurred in the spring of 1981. That resulted in a particular witches' brew of corporate cultures coming into play:
  • Ford had (and still has) a particularly forceful brand of management, where specific targets are set and pressure is brought throughout the organization to ensure such targets are achieved. In the early 1980s, the focus was on reducing headcount throughout all activities within an organization. I really do mean all activities, and not just through voluntary measures such as incentives for early retirement (which tends towards somewhat patchy results). I should also mention that Ford had a fairly unified management structure, where top managers crossed over quite often between management and finance functions and back again. I was familiar with this, having grown up listening to my father's stories about how this had been applied at Ford's Oakville operations.
  • Pilkington had a decentralized country-by-country management structure, and the Canadian operation was fairly regimented in its approach. The finance side was quite humourless, and initiative was not expected but obedience was. There was a fair bit of bureaucracy there, which tended to slow things down. On the other hand, they always felt they were superior to CGIL, contrary to the evidence at hand.
  • Canadian Glass was quite relaxed in comparison, and collaboration was encouraged at all levels. At each division, the General Manager and Controller had equal authority and responsibility, and I was expected to deal with all of them. Response to any concerns was quite quick in both directions, and no issues were allowed to fester. Again, financial results were quite good throughout all divisions.
Note the priority of the cultures involved. Looking back now, it was quite predictable who was bound to lose when headcount reductions were forced through. The Pilks crowd were essentially looking for job security. As one of the first steps, the CGIL head office was closed in April 1982, and all of us moved across to the Ford Glass offices. And then the reductions started, albeit discreetly at first.

I sawit then occurring in a rather blatant manner in 1983, when I was given a survey form to identify what proportion of my time was spent on various activities. I noted that no-one else was being given such forms, and it didn't take a rocket scientist to figure out what was going to happen. I just gave some (*ahem*) wild guesses, and it was shortly after that I was told that my position was now redundant. Several weeks after that, I heard through the grapevine that those managers were shocked to discover that I was doing the workload of six of their people combined , and they really had to scramble to try and figure out how to divide up what had to be done!

I went ahead and got my RIA the following year, which was transformed into the CMA designation in July 1985. There have been interesting moments since that time, but none were ever as exciting or as enjoyable.


And what happened to that operation since? It has essentially gone the way of all flesh:
  • In 1988, Ford sold its entire glass operation to Asahi Flat Glass (owned by Mitsubishi), which is now known as AGC.
  • Their float glass manufacturing plant in Scarborough,originally established in 1967, was shut down around 1999. Another float plant had been established at St-August-de-Demaures in Quebec in 1992, but that one shut down in 2008 because of manufacturing overcapacity in the North American market.
  • All of the fabrication, contracting and retail centres in Canada have now been sold off or closed. There is only one automotive glass facility here now, as shown on AGC's map.
On a broader scale, I believe I got off a lot better than many others then. Many accountants came face to face with job losses for the first time in their lives. At Coopers + Lybrand, now part of PwC, the practice for articling students had been to allow them three chances to write the UFE (the CA final exam) before they would be told to leave if they still could not pass. Around that time, that was cut back to allow them only one kick at the can, as most UFE graduates decided to stay on at the firm instead of having a large proportion decamping to positions in private enterprise. From that point on, the senses of job security and loyalty were permanently shaken, and they have never really settled back down since. These days, it can be said that many actually suffered from a type of post-traumatic stress disorder from these events, although it was never described as such, and that had wide-ranging effects over the following decades that have never been discussed.

The desire for headcount reductions continues unchecked everywhere, and almost every acquisition seems to result in another head office being hollowed out as a result. I've heard it said that the fat has now been trimmed off everywhere, and now we're cutting into the bone!

I see the potential for several case studies and/or theses in several academic fields. I wonder who would be interested in following up on this?