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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Clarification requested in respect of the last sentence of the last paragraph in the TN's example of the application rule of subsection 250(5) of the Act published by the Department of Finance Canada on October 27, 1998.
Position: Example provided to explain that what is important for the application rule is the continuity of a person's residence from February 24, 1998, under the Canada-Treatyland treaty, in Treatyland.
Reasons: Wording of the disposition et 1999-0014055
November 1, 2001
Colleen Kakakaway International and Trusts Division
Client Services Division Income Tax Rulings Directorate
Calgary TSO J. Desparois, M. Fisc.
957-8982
2001-007174
Subsection 250(5) of the Income Tax Act (the "Act")
This is in reply to your email of February 7, 2001 to Greg Middleton of the Income Tax Rulings Directorate, requesting our interpretation of the example provided in the Explanatory Notes relating to the Income Tax (the "TN") published by the Department of Finance Canada on October 27, 19981 concerning the transitional rules of subsection 250(5) of the Act. The example and the related text preceding it read as follow:
"Amended subsection 250(5) generally applies after February 24, 1998. However, the subsection does not apply immediately to an individual who was already on that date, under a tax treaty between Canada and another country, resident in the other country. Such an individual will be subject to subsection 250(5) only when the individual next becomes resident in another country, under that treaty or a different one.
For example, assume the following:
- a typical tax treaty has been in force between Canada and Treatyland for many years;
- in 1995 an individual, N, moved from Canada to Treatyland;
- because of N's continuing ties to Canada, N remained resident in Canada under the Act;
- since 1996, Treatyland's income tax law has treated N as resident in Treatyland; and
- under the treaty tiebreaker rule, N was resident in Treatyland, and not in Canada, on February 24, 1998.
On these facts, subsection 250(5) will apply to N only from the time (if any) when N next becomes resident, under a treaty, in a country other than Canada. That could happen in several different ways. For example:
- N could cease to be resident in Treatyland, then become resident there again; or
- N could move from Treatyland to another treaty country, and become resident there under Canada's treaty with that country.
Note that as long as N remains resident in Treatyland, N can cease to be resident in Canada under the Act, then become resident here again, without causing subsection 250(5) to start to apply. What is important is not the continuity of N's residence in Canada, but rather the continuity of N's residence, under the Canada-Treatyland treaty, in Treatyland."
Question
You request a clarification of the last paragraph of the above-reproduced example. You also request a confirmation that if N ceases to be resident in Canada, that the normal consequences of ceasing to be a resident of Canada would then apply to N and thus, N would be considered non-resident from that date. You would like an example of how could N cease to be resident in Canada under the Act and then become resident here again, without causing subsection 250(5) to apply as stated in the example.
Subsection 250(5) of the Act deems a person not to be resident in Canada at a time if at that time
- the person would be resident of Canada for the purposes of the Act, despite this subsection 250(5) of the Act and despite any "tax treaty" as defined under paragraph 248(1) of the Act; and
- the person is resident in the other country under a "tax treaty" and not resident of Canada.
In other words, subsection 250(5) of the Act is a deeming rule that applies where a person that would otherwise be resident in Canada is resident in the other country because of the application of a "tax treaty" between Canada and another country. This may occur where both Canada and the other country treat the person as resident, bringing the treaty's "tie-breaker" rules into play and causing a determination that for purposes of the treaty the person is resident in the other country. To ensure that the person's tax status in Canada reflects its status under the treaty, subsection 250(5) treats the person in such a case as a non-resident for the purposes of the Act.
Subsection 250(5) of the Act has been modified to apply to individuals after February 24, 1998. However, as mentioned in the application rules reproduced in the history of the provision, subsection 250(5) of the Act does not apply immediately to an individual who was already on February 24, 1998 resident in another country pursuant to a "tax treaty" concluded between Canada and that other country. Such an individual will be subject to subsection 250(5) of the Act only when the individual next becomes resident in another country under that "tax treaty" or under a different one.
In the example reproduced above, subsection 250(5) of the Act does not apply to N because on February 24, 1998 he was resident in Treatyland and not of Canada pursuant to the tax treaty with Treatyland. N will only be subject to subsection 250(5) of the Act from the time (if any) when N next becomes resident, under a "tax treaty", in a country other than Canada.
Continuing with the TN example, if N remains resident in Treatyland, N could cease to be resident in Canada under the Act by eliminating all his ties in Canada. If N does so, however, we confirm your view that the normal consequences of ceasing to be a resident of Canada would then apply to N and thus, N would be considered non-resident from that date. In that case, N will not be subject to subsection 250(5) of the Act because N would be a non-resident of Canada for the purposes of the Act despite subsection 250(5) of the Act and despite any "tax treaty". The reference to the application rule in this example is irrelevant because N is non-resident of Canada for purposes of the Act despite any "tax treaty".
N could become resident of Canada again if as an example he spends more than 183 days in Canada in a future year or re-establishes his ties in Canada. The TN mentioned that N could do so "without causing subsection 250(5) to start to apply" because he will still be resident of Treatyland. As mentioned above two conditions must be met before subsection 250(5) of the Act applies: N has to be resident of Canada for the purposes of the Act, despite subsection 250(5) of the Act and despite any "tax treaty"; and N has to be resident in the other country under a "tax treaty" and not resident of Canada. Therefore, if N becomes resident of Canada again and remains resident of Treatyland, then ignoring the application rule, subsection 250(5) of the Act would apply because both conditions would be met. However, subsection 250(5) of the Act would not apply to N because since February 24, 1998, N has remained resident of Treatyland but pursuant to the tax treaty with Treatyland and the application rule provides that N will only be subject to subsection 250(5) of the Act from the time (if any) when N becomes resident again, under a "tax treaty", in a country other than Canada. If N would have become a non-resident of Treatyland in year 2000 as an example and then became resident again of Treatyland in the year 2001, the application rule would not have protected N from the application of subsection 250(5) of the Act because N would have become resident again under a "tax treaty" in a country other than Canada even if that country is Treatyland again. That is the reason why in the last sentence of the TN example, it is mentioned "What is important is not the continuity of N's residence in Canada, but rather the continuity of N's residence, under the Canada-Treatyland treaty, in Treatyland."
We hope that these comments will be useful and should you have any question do not hesitate to contact us.
Alain Godin, Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
ENDNOTE
1 Bill C-72; S.C. 1999, c. 22, s. 82(4)
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