The address guidelines for the PR application when the applicant is staying in Canada during processing are as follows: you can always use the Canadian address as the
mailing address BUT you can only use the Canadian address as the "residential address" if the applicant was admitted to Canada with status valid for at least one year. If the applicant was admitted with status valid for less than one year (which is the most common scenario), they must use an address in their country of permanent residence or birth as the "residential address" on the application. This is how CPC-Mississauga determines which overseas visa office will process the application. If an outland applicant is staying in Canada and was initially admitted to Canada for a period of at least one year, they're eligible to have their application processed through Buffalo -regardless of where they're from. So, for example, when someone is in Canada on a work or study permit and marries, they can have their ap processed through Buffalo - rather than having to be processed through the embassy in their home country. If, however, someone is only admitted to Canada for a period of six months (normal for visa-exempt nationals), their outland application must still be processed through the embassy at home. So, in your case, if the applicant was legally admitted to Canada on entry with authorization to stay for at least one year, you can use the Canadian address as the residential address and the ap could be processed through Buffalo (not always an advantage!). Otherwise you can use the Canadian address as the mailing address, but you must provide an address (even a family member's address) in the country of birth or permanent residence, and the application will be transferred after sponsorship approval to the embassy that represents that country. (Note: US citizens process through Buffalo either way.)
This link leads to the
outland application package - use all the forms and information in this packet.
As far as who lives with who: again, be consistent. If the applicant was admitted for a period authorized for at least one year, s/he is "living" in Canada and can say "Yes" to living together - and can use the Canadian address. Otherwise, the applicant is just "visiting" Canada, and not technically living with the Canadian sponsor. A foreign national can not be "living in Canada" as a tourist. If they were given status that exceeds that normally given to tourists, because of the marriage or relationship, that's different.