Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: The taxability of certain awards under 56(1)(n), 56(1)(o), or 5(1), employment income.
Position: The awards are income from employment. Taxable in the hands of Canadian residents. International section will reply regarding taxation of non-resident recipients.
Reasons: There is an employment relationship between the company and the recipients.
IDRC International Development
Research Centre
250 Albert Street 981790-5
P.O. Box 8500 David Shugar
Ottawa, Ontario
K1G 3H9
Attention: Mr. Christopher Smart
December 20, 1999
Dear Sir:
Re: Awards and Research Grants
We are writing to follow-up our letter of September 21, 1998 to you, which was in response to your letter of July 10, 1998. As noted in our previous letter, we were unable to provide an opinion, at that time, concerning the taxation of awards 4, 5, 6, and 10, (the Journalism Award, the Centre Internship Award, the Professional Development Award, and the Pearson Fellowship Award), as there was doubt as to the status of those payments as employment income. We apologize for the delay in our response.
Your request was forwarded to our Trust Accounts Division to determine whether a master/servant relationship exists between the parties. We have received their comments and can provide you with our views concerning the taxation of the awards when received by residents of Canada. Our International Section will provide you with comments regarding the taxation of the awards received by non-residents of Canada. We are also providing you with the Trust Accounts Division's comments regarding insurability and pensionability of these amounts.
A resident of Canada will be subject to tax on his or her world income under subsection 2(1) of the Income Tax Act (the "Act"), and is required to file a T1 income tax return to report such income. The individual may be eligible to claim a foreign tax credit for any income tax paid to a foreign country on any of such income that is sourced outside Canada. It is a question of fact whether an individual was a resident of Canada in a particular year. The determination of residence of an individual can only be made by examining all the facts and circumstances with respect to that individual. In addition, an individual who would otherwise be resident in Canada for the purposes of the Act, may in certain situations not be taxable in Canada if that person is entitled to treaty benefits. We recommend that you contact the International Tax Services Office for a determination of residency and of the taxation for individual cases.
Centre Internship Award and Professional Development Award
Recipients of the Centre Internship Award and Professional Development Award work out of the IDRC office in Ottawa under the direction and control of IDRC. IDRC sets the hours of work, provides the tools and equipment and the services performed are an integral part of the payor's business. Recipients of these awards could be Canadian citizens or foreign nationals. In our view, the awardees are considered to be employed under a contract of service with IDRC and, therefore, the awards would be employment income under subsection 5(1) of the Act. Under subsection 153(1) of the Act, the payor of salary, wages or other remuneration, is required to deduct or withhold taxes in accordance with prescribed rules. In addition, the recipients would be in insurable employment under paragraph 5(1)(a) of the Employment Insurance Act (the "EI Act") and in pensionable employment in accordance with Section 6 of the Canada Pension Plan (CPP).
Pearson Fellowship Award
The Pearson Fellowship Award is awarded to foreign nationals to work at the IDRC office in Ottawa for a period of up to one year. At the end of the period, the awardees return to their country of origin. Normally, the recipients work out of Ottawa. However, this year the two recipients will work at IDRC in Ottawa for only 3-4 months. For the remaining part of the contract, the awardees will work out of IDRC's Regional Offices in the recipient's homeland.
While in Canada, IDRC sets the hours of work, provides the tools and equipment and the services performed are an integral part of the payer's business. Therefore, the awardees are considered to be under a contract of service with IDRC. The awards would be employment income under subsection 5(1) of the Act and subject to the withholding of tax under subsection 153(1) of the Act.
The period of employment in Canada would be insurable under paragraph 5(1)(a) of the EI Act and pensionable in accordance with section 6 of the CPP. However, the period of employment outside Canada would be insurable only if all the conditions of section 5 of the Employment Insurance Regulations (the "EI Regulations"), are met, one of which is that the employee must "ordinarily reside" in Canada. Since these employees will not, the employment will not be insurable nor would it be pensionable as they will not meet the criteria set out in section 16 of the CPP Regulations in that they will not ordinarily reside in Canada nor will they ordinarily report for work at an establishment in Canada.
Journalism Award
The Journalism Award is awarded to either a Canadian or a foreign national. The awardee is engaged by IDRC under a contract of service. The services are performed outside Canada at an establishment outside Canada. The awards would be taxable as employment income under subsection 5(1) of the Act and subject to withholding of tax under subsection 153(1) of the Act.
As mentioned earlier, employment outside Canada is only insurable if the conditions outlined in section 5 of the EI Regulations are met. If the awardee is a foreign national and does not "ordinarily reside" in Canada, the conditions would not be met and the employment would not be insurable.
A Canadian, resident in Canada, at the time they were engaged by IDRC, would be in pensionable employment under section 16 of the CPP Regulations, if the employer elected to provide coverage for all such employees employed by them in that country. However, foreign nationals would not be pensionable as they do not meet the criteria set out in section 16 of the CPP Regulations since they would not have been a resident of Canada nor would they ordinarily report for work at an establishment in Canada.
There would be no requirement for IDRC to remit EI premiums and/or CPP contributions for periods of employment that were not pensionable or insurable.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content