13 June 2002 Internal T.I. 2002-0145187 - Representation Allowance; Factual Residents

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: Does an individual who would otherwise qualify for a tax-exempt representation allowance under subparagraph 6(1)(b)(iii) of the Act as a person "described in paragraph 250(1)(c)" of the Act fail to qualify for such an allowance if he or she is an factual resident of Canada rather than a deemed resident of Canada?

Position: No.

Reasons: FITAC # E 74302.

The ordinary meaning of the words "described in" used in 6(1)(b)(iii) is a reference to the categories of persons set out in 250(1)(b), (c), (d) and (d.1) and not a reference to actually being a deemed resident under those paragraphs. In these circumstances, there does not appear to be any policy reason to give deemed residents (i.e., those with no significant ties to Canada but with employment closely connected to matters of national or provincial importance) and not factual residents this type of tax benefit. The general policy behind the representation allowance benefit appears to be to benefit certain government funded operations (whether military, diplomatic, or charitable/developmental). Also, our past letters on 6(1)(b)(iii) appear to (rightly) assume that it is the categories, rather than the deeming, portion of 250(1) that is important.

XXXXXXXXXX 	2002-014518
		Eliza Erskine
June 13, 2002

Dear XXXXXXXXXX:

Re: Application of Subparagraph 6(1)(b)(iii) of the Income Tax Act (the "Act") to Individuals who are Factual Residents of Canada

This is in reply to your facsimile to us of XXXXXXXXXX, 2002, requesting our views regarding the above-noted subject matter. We also acknowledge our telephone conversations with you (XXXXXXXXXX/Erskine) of XXXXXXXXXX, 2002 and XXXXXXXXXX, 2002.

Issue

We understand that you are concerned because of an assertion made by XXXXXXXXXX in a letter to XXXXXXXXXX, dated XXXXXXXXXX, 2002, that only individuals who are deemed residents pursuant to paragraphs 250(1)(b), (c), (d) or (d.1) of the Act are eligible to receive the non-taxable representation and special allowances referred to in subparagraph 6(1)(b)(iii) of the Act. This assertion is of particular concern to you because a significant number of employees of the Department of Foreign Affairs and International Trade ("DFAIT"), receive representation allowances from DFAIT while posted abroad, and many of these employees are factual, not deemed, residents of Canada. As you are aware, although these employees would generally fit into the category of persons referred to in paragraph 250(1)(c), which includes "an ambassador, minister, high commissioner, officer or servant of Canada", once a person is determined to be a factual resident of Canada while abroad, he or she cannot be a deemed resident of Canada under paragraph 250(1)(c).

The issue that you have raised as a result of XXXXXXXXXX letter is whether subparagraph 6(1)(b)(iii) of the Act can apply to an individual who is included in the category of persons who would be deemed to be resident in Canada while abroad under paragraph 250(1)(c) of the Act, even if the individual is not actually deemed to be resident under that paragraph because he or she is already a factual resident of Canada.

Our Comments

Subparagraph 6(1)(b)(iii) of the Act applies to "representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c), (d) or (d.1)" (emphasis added). In our opinion, the better view is that the phrase "a person described in paragraph 250(1)(b), (c), (d) or (d.1)" should be interpreted as referring to a person who fits into one of the categories of persons listed in paragraphs 250(1)(b), (c), (d) or (d.1) of the Act, rather than to a person who is deemed to be resident in Canada because he or she fits within one of those categories. This interpretation is consistent with how we have analysed subparagraph 6(1)(b)(iii) of the Act in the past and, in our opinion, is the better interpretation of what is meant by something "described in" a provision of the Act.

Subsection 250(1) of the Act provides that a person is deemed to be resident in Canada if the person is described in any one of several categories. Each paragraph under subsection 250(1) sets out a different category of persons who will be deemed to be resident in Canada for purposes of the Act. Thus, in our view, what is described in each of paragraphs 250(1)(b), (c), (d) and (d.1) of the Act is a category of persons; the consequence of the application of those provisions is to be deemed to be resident in Canada despite having severed all significant residential ties to Canada. The words of subparagraph 6(1)(b)(iii) of the Act - "described in" - do not require that one of paragraphs 250(1)(b), (c), (d) or (d.1) of the Act must actually apply to the person receiving the representation or special allowance in order for the allowance to be non-taxable. In summary, it is our position that the words "described in" are not equivalent to the words "subject to".

This interpretation is supported by the apparent policy rationale behind subparagraph 6(1)(b)(iii) of the Act. This subparagraph refers only to those persons who are employed abroad by the government of Canada or a province, or whose employment abroad is funded by the government of Canada, and the employment is directly connected to core government operations abroad (i.e., military, diplomatic, and developmental/charitable). This suggests that the policy rationale behind the provision was to promote the hiring and retention of employees in the enumerated categories by providing the federal and provincial governments with greater flexibility than private employers in compensating such employees. In our view, restricting the non-taxable representation allowance benefit to deemed residents would seriously undermine this objective, as the nature of the employment referred to in subparagraph 6(1)(b)(iii) is such that it is likely that most of the relevant employees will be factual residents of Canada while abroad (i.e., will maintain significant residential ties to Canada).

In conclusion, it is our position that an individual whose occupation is listed in paragraph 250(1)(c) of the Act is eligible to receive a non-taxable representation allowance pursuant to subparagraph 6(1)(b)(iii) of the Act whether the individual is a factual resident of Canada or a deemed resident of Canada. We note that this position was set out in writing in 1989, in our document number E 74302. To obtain a copy of this document, please contact Jackie Page of our Directorate at 957-0682.

We trust that the above comments will be of assistance to you.

Yours truly,

Jim Wilson
for Director
International and Trusts Division
Income Tax Rulings and
Interpretations Directorate