8 October 2002 External T.I. 2002-0158785 - Taxation of Embassy Technical Staff

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: Whether a member of the technical staff of the Embassy of XXXXXXXXXX , who is also a Canadian citizen, is taxable on that remuneration in Canada.

Position: No

Reasons: Article XXVII deems the person to be a resident of XXXXXXXXXX . Article XIX then gives XXXXXXXXXX the right to tax the remuneration from the Embassy position.

XXXXXXXXXX 								2002-015878
T. Cook
October 8, 2002

Re: Taxation Status

Dear XXXXXXXXXX:

We are writing in reply to your email of August 19, 2002, in which you requested our views regarding your status for Canadian income tax purposes. Your situation can be summarized as follows:

? you are XXXXXXXXXX/Canadian dual national;

? you lived in Canada from XXXXXXXXXX to XXXXXXXXXX and became a Canadian citizen in XXXXXXXXXX;

? in XXXXXXXXXX you returned to XXXXXXXXXX to live;

? you obtained employment as a technical staff member with the Embassy of XXXXXXXXXX in Ottawa and arrived in Canada in XXXXXXXXXX to fill this position; and

? you are subject to tax on your total world income in XXXXXXXXXX.

In particular, you have requested our views on your residency for income tax purposes and whether you should be reporting the income from your embassy position in Canada or XXXXXXXXXX.

Our Comments

Your email describes a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on the tax consequences applicable to a specific taxpayer in respect of particular circumstances other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of assistance.

Part I of the Income Tax Act (the "Act") levies an income tax on the worldwide income of residents of Canada, and on certain Canadian-source income earned by non-residents. The circumstances under which an individual will be a resident of Canada for purposes of the Act are set out in Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status. An individual resident in Canada is, prima facie, subject to Canadian income tax. However, where the individual is a technical staff member of the XXXXXXXXXX Embassy, his or her tax status would also depend on whether he or she is:

? exempt from tax under specific provisions of the Act;

? exempt from tax under the Foreign Missions and International Organizations Act (the "FMIOA"); or

? deemed to be a resident of XXXXXXXXXX, or exempt from tax, under the Canada XXXXXXXXXX Tax Convention (the "Tax Convention").

If the individual is exempt from tax under either the Act or the FMIOA, there is no need to consider the impact of the Tax Convention.

The Act

An officer or servant of a country other than Canada whose duties require him or her to reside in Canada is exempted from Part I tax by paragraph 149(1)(a) of the Act, during any period throughout which certain conditions are met. One of the conditions for the exemption under paragraph 149(1)(a) is that the individual not be a citizen of Canada during the relevant period. Therefore, XXXXXXXXXX/Canadian dual national would not be exempted from Part I tax by paragraph 149(1)(a).

The FMIOA

Where an individual cannot meet the requirements for exemption under section 149 of the Act, part or all of his or her income may still be exempt from tax by virtue of the interaction of paragraph 81(1)(a) of the Act and the FMIOA. The FMIOA gives certain articles of the Vienna Convention on Diplomatic Relations (the "Diplomatic Convention") and the Vienna Convention on Consular Relations (the "Consular Convention") the force of law in Canada. Among those articles incorporated into Canadian law are Articles 1, 34 and 37 of the Diplomatic Convention.

Article 34 provides that members of the diplomatic staff of a mission are exempt from Canadian tax, with some exceptions (e.g., tax on Canadian source private income). Article 37 extends this exemption to members of the administrative and technical staff of the mission, as long as those staff members are not nationals of, or permanently resident in, Canada. Similar articles in the Consular Convention are also incorporated into Canadian law. As a result, a technical staff member of an embassy who is XXXXXXXXXX /Canadian dual national would not be exempted from Part I tax by the FMIOA.

The Tax Convention

Where an embassy staff member resident in Canada does not meet the conditions set out in either the FMIOA or paragraph 149(1)(a) of the Act, the Tax Convention is then considered. It may affect the individual's Canadian tax status where the individual is considered a resident of XXXXXXXXXX for purposes of the Convention, or where certain income is exempted from tax in Canada by the Convention. We note that subsection 250(5) of the Act deems that individuals resident in another country by virtue of a tax convention are non-residents of Canada for purposes of the Act.

Residency for purposes of the Tax Convention is generally determined under Article IV of the Tax Convention. An individual is resident in the country in which he or she is liable to tax because of his or her domicile, residency or similar criteria. Where an individual is resident in both countries under domestic tax law, deemed residency for purposes of the Tax Convention is determined using a series of tiebreaker rules.

Article XXVII provides a special rule for determining the residency of "a member of a diplomatic, consular or permanent mission of a Contracting State" for purposes of the Tax Convention. Pursuant to paragraph 2 of the Article, a member of a mission of XXXXXXXXXX situated in Canada is deemed to be resident in XXXXXXXXXX if he or she is liable to the same tax on his or her worldwide income as are residents of XXXXXXXXXX. If the individual is not subject to the same tax in XXXXXXXXXX on worldwide income as are residents of XXXXXXXXXX, Article XXVII of the Tax Convention does not apply. In this regard, we note that the definition of "members of the mission" as used in Article 1 of the Diplomatic Convention includes members of the technical staff. Consequently, a member of embassy technical staff who is liable to the same tax on his or her worldwide income as are residents of XXXXXXXXXX will be deemed to be a resident of XXXXXXXXXX regardless of his or her residence under Article IV or citizenship.

With respect to the taxation of that individual's remuneration from the embassy position, we note that subparagraph 1(a) of Article XIX of the Tax Convention provides that remuneration, other than a pension, paid by the Government of XXXXXXXXXX to an individual for services rendered to the Government of XXXXXXXXXX is generally only taxable in XXXXXXXXXX. But pursuant to subparagraph 1(b) of the Article, this remuneration would instead be taxable only in Canada if:

? the individual is a resident of Canada;

? the services are rendered in Canada; and

? the individual did not become a resident of Canada solely for the purpose of performing those services.

An individual who is deemed to be a resident of XXXXXXXXXX by virtue of Article XXVII would not be subject to Canadian income tax on remuneration received from an embassy technical-staff position since the individual would not be a resident of Canada for purposes of the Tax Convention. This remuneration would be only taxable by XXXXXXXXXX, even if the individual were a citizen of Canada.

Conclusion

An individual who is a member of the technical staff of the Embassy of XXXXXXXXXX would be deemed to be a resident of XXXXXXXXXX for purposes of the Tax Convention as long as he or she is liable to the same tax on his or her worldwide income as are residents of XXXXXXXXXX. By virtue of Article XIX, he or she would be taxable only in XXXXXXXXXX on the remuneration from that position. The fact that the individual is a Canadian citizen does not alter this analysis.

The individual would be a non-resident of Canada for purposes of the Act and would be subject to the same tax obligations and filing requirements as any other non-resident (subject to the above comments). In this regard, we would direct you to Interpretation Bulletin IT-420R3, Non-Residents - Income Earned in Canada, and Information Circular 77-16R4, Non-Resident Income Tax. Both of these documents can be found on our website at www.ccra-adrc.gc.ca.

We trust that our comments are of assistance to you. However, as stated in paragraph 22 of Information Circular 70-6R5, the opinion expressed in this letter is not a ruling and consequently is not binding on the Canada Customs and Revenue Agency.

Yours truly,

Jim Wilson
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch