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: Would the contractual or statutory framework that governs the relationship between the employer and employee be used to determine the meaning of "immediately prior to appointment or employment" found in 250(1)(c)?
Position: Our position has been that the phrase "appointment or employment" refers to the hiring rather than actual commencement of employment. As it is a determination of fact when an employee is actually hired or considered employed, we could look to the relevant legislation or contract law; however, it would depend on the circumstances whether the use of that approach produces the intended results of paragraph 250(1)(c) being the taxation of persons who are employed by Canada or a province in a foreign country.
Reasons: previous position taken in files 9507485, 2000-001328 and 2002-011819
XXXXXXXXXX D. Yuen
2002-014355
Attention: XXXXXXXXXX
Re: Deemed Residency
June 14, 2002
Dear XXXXXXXXXX:
We are writing in response to your letter dated May 27, 2002 wherein you requested further comments regarding our letter to you dated May 24, 2002 (our file 2002-011819) in respect of the situation described below. Unless otherwise stated, all references to a statute herein are to the Income Tax Act (Canada), R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
Situation
A person resident in Canada sees an advertisement for a position at a Canadian diplomatic post in a foreign country. The person applies for the position and is successful in the competition. The employment is to commence on November 1. On October 25 the person leaves Canada. You have asked us to assume that the person has ceased to be resident in Canada at that time. On November 1, the person commences his or her employment as an officer or servant of Canada. The person did not receive a representation allowance as referred to in paragraph 250(1)(c).
We previously stated in our letter dated May 24, 2002 that it was our position that the phrase "immediately prior to appointment or employment by Canada" refers to the time when the person is hired and not when the person actually commences employment. In the situation described above, the person is resident in Canada immediately before hiring (that is, when the person's employment is confirmed by letter or contract) so the provisions of paragraph 250(1)(c) will apply to deem the person to be resident in Canada throughout the taxation year.
1. It is your view that the phrase "immediately prior to appointment or employment by Canada" refers to a determination of fact that can only be determined by reference to the employment legislation, if any, of the country where the employment will be exercised. As the Act does not determine when or if an appointment exists, you feel that such a fact may only be determined by the contractual or statutory framework that governs the relationship.
2. If a Canadian resident individual is regarded as also being a resident for tax purposes in a treaty country (i.e., where the treaty residency tie-breaker rule applies), it is your view that the individual's residency status in Canada should be determined by the appropriate tax treaty and subsection 250(5).
1. We agree that reference to the relevant legislation or contract law may be made to determine whether and when a person is considered "appointed or employed".
2. We agree with your comment.
However, all of the facts and circumstances of each case will be examined to determine whether in those circumstances the individual can be considered to have been "resident in Canada immediately prior to appointment or employment" for the purposes of paragraph 250(1)(c). In addition, under section 245, where an arrangement is entered into by a person primarily to obtain a tax benefit and the arrangement results in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act, the tax consequences to the person will be determined as is reasonable in the circumstances to deny the benefit.
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC 70-6R5 dated May 17, 2002 issued by the Canada Customs and Revenue Agency (CCRA) and are not considered binding on the CCRA.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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