25 July 2003 External T.I. 2003-0018765 - Art. 14 & 15 Cnd-Japan Treaty - Teacher

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 Article 14 or 15 of the Canada-Japan tax treaty applies in a scenario where a Canadian resident teaches in a Japanese University for a period of three months.

Position: Article 15 applies since the nature of the relationship between the Japanese University and the taxpayer falls within the character of an employer/employee relationship, and because the taxpayer is paid by the Japanese University.

XXXXXXXXXX 								2003-001876
S. Chatel
July 25, 2003

Dear XXXXXXXXXX:

Re: Your Status in Respect of the Canada-Japan Income Tax Convention

We are writing in response to your letter of May 14, 2003, wherein you request our opinion regarding the application of the Canada-Japan Income Tax Convention (the "Convention") to your situation. We also acknowledge the additional information you provided in several subsequent emails.

You have described your situation as fallows:

? You are a full-time Professor at XXXXXXXXXX.

? You spent XXXXXXXXXX months (XXXXXXXXXX) in XXXXXXXXXX, where you were requested to teach a series of graduate and undergraduate student lectures at XXXXXXXXXX as part of their graduate student training program, as well as some research collaboration.

? The lecture topics were specified to you by XXXXXXXXXX, and were not independently selected by you.

? You received a salary of XXXXXXXXXX payments (XXXXXXXXXX each month), in return for your teaching and research collaboration.

? The Japanese tax authorities requested your employer to withhold XXXXXXXXXX% for Japanese tax, as they regard you as an employee in Japan.

? XXXXXXXXXX paid your airfares to and from Japan and most of your apartment rental in XXXXXXXXXX (you have been asked to pay approximately XXXXXXXXXX% of the cost).

? You were required to observe the regulations and instructions of the university as to the required hours of schedule and performance of duties.

? You were required to observe the same holidays and vacations as the Japanese faculty members.

? The employment could be cancelled by the university with XXXXXXXXXX days notice.

? You were provided a university-based office with Internet and long-distance telephone privileges.

? As in the case of regular XXXXXXXXXX employees, you were instructed to perform teaching duties, and present a course having a pre-defined content decided by XXXXXXXXXX, and for a number of hours decided by XXXXXXXXXX.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Under the Income Tax Act (Canada) (the "Act"), the salary paid by the Japanese University for your teaching activities is fully taxable in Canada since Canadian residents are taxable on their worldwide income (subsection 2(1) of the Act). We understand that Japan also withheld tax on your salary derived from your teaching activities in Japan.

Either Article 14 or 15 of the Convention may apply to your situation, depending on the nature of your relationship with the Japan University, that is, whether you are an independent consultant or an employee.

According to Article 14 of the Convention, professional services rendered in Japan by a Canadian resident are taxable only in Japan where the Canadian resident has a fixed base regularly available to him in Japan. Pursuant to paragraph 2 of Article 14, the expression "professional services" includes teaching activities. However, the teaching activities have to be "of an independent character" to fall into the ambit of Article 14.

Where the teaching activities are of a dependant character, such as an employer/employee relationship, Article 15, rather than Article 14, applies. We are of the view that your relationship with XXXXXXXXXX is that of an employer/employee based on the facts above and, consequently, Article 15 applies. Under paragraph 1 of Article 15, both Japan and Canada may tax the salary. Paragraph 2 of Article 15 does not apply to allow only Canada to tax since it is the Japanese University that is paying the remuneration.

However, pursuant to Article 21 of the Convention and subsection 126(1) of the Act, Canada will give a foreign tax credit for the tax you paid in Japan, up to the amount of Canadian tax paid on the same income, so that there should be no double taxation.

We hope you will find our comments helpful.

Yours truly,

Jane Stalker
Section Manager
for Division Director
International Section
Income Tax Rulings Directorate
Policy and Legislation Branch