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: dual residency
Position: resident of France under the Canada-France Tax Convention
Reasons: liable to tax on worldwide income in France, permanent home in France, home in Canada rented to arm's length third party at arm's length terms and conditions, taxpayers do not have the Canadian home available to them while they are in France, family will live in France, consistent with position in 2003-0035407
XXXXXXXXXX 2003-004406
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
We are writing in response to your request for an advance income tax ruling dated XXXXXXXXXX.
To the best of your knowledge, none of the issues involved in this request for an advance income tax ruling:
(a) is being considered by a tax services office or taxation centre in connection with a previously filed return by you or a person related to you;
(b) is under objection by you or a person related to you; or
(c) is before the courts or if, a judgment has been issued, the time limit for appeal to a higher court has not expired.
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"). Our understanding of the facts is as follows.
Facts
1. XXXXXXXXXX ("Ms. X") and XXXXXXXXXX ("Mr. X") are married and are resident in Canada for the purposes of the Act. Ms. X and Mr. X file their income tax returns at the XXXXXXXXXX Taxation Centre. Ms. X's social insurance number is XXXXXXXXXX and Mr. X's social insurance number is XXXXXXXXXX.
2. Mr. X has received an offer of employment (the "Offer") with the XXXXXXXXXX France. The Offer is for a XXXXXXXXXX year term, beginning in XXXXXXXXXX and ending in the summer of XXXXXXXXXX. Mr. X has not yet accepted the Offer.
3. Ms. X and Mr. X each have registered retirement savings plans ("RRSPs") and their daughters have registered education savings plans ("RESPs"). If the Offer were accepted, there would be no withdrawals from these plans during their absence from Canada. Ms. X also has various investments (the "Investments").
Proposed Transactions and Events
4. The Offer will be accepted and Ms. X and Mr. X and their daughters will live in XXXXXXXXXX in a rented apartment. Ms. X and Mr. X will rent their present home (the "Rental Property") in XXXXXXXXXX to an arm's length third party at arm's length terms and conditions (including a 90 day notice to enable the lease to be broken). The home will be rented throughout Ms. X and Mr. X's absence from Canada and, accordingly, they would not have use of their home during that absence. An arm's length property manager will manage the Rental Property.
5. Ms. X and Mr. X will bring some personal possessions with them and place the remainder in storage. Ms. X and Mr. X will maintain Canadian bank accounts and a safety deposit box but will not maintain a Canadian post office box. Their car will be sold prior to their departure from Canada.
6. Ms. X will terminate her present employment and will not earn any income from sources in France. Mr. X will obtain a leave of absence from his present position with the understanding that upon his return he will be offered employment in the organization. Ms. X and Mr. X will maintain their Canadian passports and XXXXXXXXXX driver's licenses (until their expiry). The daughters will attend school in XXXXXXXXXX. There are 2 planned visits to see family in XXXXXXXXXX at Christmas and during the summer.
7. Although Ms. X and Mr. X will be living in France with their family in a permanent home, they will be considered ordinarily resident in Canada because they will not have severed and do not intend to sever all residential ties with Canada. As stated above, Mr. X will not resign from his position with his Canadian employer, personal property will remain in storage in Canada, economic ties such as bank accounts, Ms. X's RRSP, Mr. X's RRSP, their children's RESPs and Ms. X's Investments will remain in Canada, and the maintenance of the XXXXXXXXXX driver's licenses, Canadian passports and safety deposit box are all indicative that Ms. X and Mr. X do not intend to permanently sever residential ties with Canada.
8. A favourable ruling from the Canada Customs and Revenue Agency (the "CCRA") that Mr. X will be resident in France under the Canada-France Tax Convention (the "Convention") and will not be subject to Canadian tax on his salary from the XXXXXXXXXX is a condition precedent for Mr. X's acceptance of the Offer.
9. Ms. X and Mr. X will be considered resident in France by virtue of having a home (the place where they will live with their family) in France under French domestic tax law.
10. With the exception of Mr. X's employment income from the XXXXXXXXXX which pursuant to an arrangement with the XXXXXXXXXX will not be taxed in France, each of Ms. X and Mr. X, as a resident of France, will be liable to tax in France on her or his worldwide income under French domestic tax law.
Purpose of the Proposed Transactions
Mr. X and Ms. X and their daughters wish to temporarily move to France where Mr. X will obtain employment with the XXXXXXXXXX.
Rulings Given
Provided that the preceding statements constitute complete and accurate disclosure of all the relevant facts and proposed transactions and events, we confirm the following:
A. Provided that Mr. X is a resident of France under the provisions of paragraph 1 of Article 4 of the Convention, by virtue of paragraph 2 of Article 4 of the Convention, Mr. X will be determined to be a resident of France for the purposes of the Convention in general and will be deemed not to be resident in Canada for purposes of the Act pursuant to subsection 250(5).
B. Provided none of Mr. X's duties of employment with the XXXXXXXXXX are performed in Canada while Mr. X is a non-resident of Canada as set out in Ruling A above, Mr. X's remuneration from the XXXXXXXXXX will not be subject to tax under the provisions of the Act.
C. Provided that Ms. X is a resident of France under the provisions of paragraph 1 of Article 4 of the Convention, by virtue of paragraph 2 of Article 4 of the Convention, Ms. X will be determined to be a resident of France for the purposes of the Convention in general and will be deemed not to be resident in Canada for purposes of the Act pursuant to subsection 250(5).
D. Subject to section 216, a withholding tax of 25% pursuant to Part XIII will be applicable to each amount paid or credited to Ms. X and\or Mr. X while they are non-residents of Canada in respect of rent paid on the Rental Property.
E. Subject to the relieving provisions of the Convention, a withholding tax of 25% pursuant to Part XIII will be applicable to each amount paid or credited to Ms. X while she is a non-resident of Canada in respect of dividends, interest and trust distributions arising in Canada from the Investments.
F. At the time they cease to be resident in Canada, subsection 128.1(4) will apply to deem Mr. X and Ms. X to have disposed of each property owned by them other than property described in paragraph 128.1(4)(b) for proceeds equal to its fair market value at that time and to have reacquired each such property at a cost equal to the proceeds of disposition of the property.
These rulings are given subject to the limitations and qualifications set out in Information Circular IC 70-6R5 issued by the CCRA on May 17, 2002 and are binding on the CCRA provided the Offer is accepted and the proposed transactions and events take place as described in paragraphs 4 to 10 above by XXXXXXXXXX. These rulings are provided based on the Act as it currently reads and do not take into account any proposed amendments.
1. Rather than be subject to withholding tax under Part XIII, a section 216 income tax return may be filed in respect of the rental income received. Tax guide T4144 which explains this return is enclosed for your perusal.
2. Depending on the nature of the investment income, the withholding tax rate may be reduced by the provisions of the Convention. For example, under the Convention dividend income is subject to a withholding tax rate of 15% depending on the circumstances.
3. Tax guide T4056 which explains what happens when you emigrate is enclosed for your perusal. Tax guide T4055 which explains what happens on your return to Canada is also enclosed. Subsection 128.1(6) allows a returning former resident to file elections in respect of the properties that were deemed disposed on emigration from Canada. The security provisions of subsection 220(4.5) permit an individual emigrating from Canada to defer payment of any tax arising from deemed dispositions of property on emigration. The effect of such elections are basically to retroactively reverse the effects of the application of subsection 128.1(4). Copies of the Department of Finance's Technical Notes that explain subsection 128.1(6) are also enclosed.
4. Nothing in this ruling should be construed as implying that the CCRA has reviewed, accepted or otherwise agreed to any other tax consequences relating to the facts and proposed transactions and events described herein other than those specifically described in the rulings given above.
Yours truly,
XXXXXXXXXX
Section Manager
for Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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