27 October 2004 External T.I. 2004-0065821E5 - Article 18 Canada-UK treaty

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.

Principal Issues: Whether individual employed by Ontario Securities Commission ("OSC") on secondment to UK Financial Services Authority falls within paragraph (a) or (b) of Article 18(1) of the Canada-UK Income Tax Convention (the "Treaty").

Position: Neither paragraph (a) or (b) of Article 18(1) would apply.

Reasons: Mr. X did not render services to the OSC during the time he was in the UK. In any case, the OSC is not a "political subdivision" or "local authority" for purposes of the Treaty. Accordingly, the words in paragraph (a) of Article 18(1) would not be met. As Mr. X was a resident of Canada for purposes of the Treaty, paragraph (b) of Article 18(1) would not apply.

								2004-006582
XXXXXXXXXX 							S. Chua
								613 957-2115
October 27, 2004

Dear XXXXXXXXXX:

Re: Article 18(1) Canada - United Kingdom Income Tax Convention ("the Treaty")

We refer to your letter regarding the above matter and write in response to your query raised. The hypothetical situation you have described is as follows:

1. Mr. X is an employee of the Ontario Securities Commission ("OSC").

2. The OSC is the Government of Ontario's regulatory body responsible for administering the Ontario Securities Act ("OSA") and Commodity Futures Act. Pursuant to these statutes, the OSC has been granted powers of investigation, prosecution, certification and licensing. The OSC is classed as an "agency" pursuant to the Province of Ontario Management Board Secretariat's List of Classified Provincial Agencies.

3. The OSC was continued as a corporation without share capital pursuant to the OSA and is composed of members that are appointed by the Lieutenant Governor in Council of the province of Ontario.

4. Pursuant to the OSA, fees and fines are payable to the OSC under certain conditions and as such, the OSC is a self-funded agency. The employees of the OSC are employed and paid remuneration by the OSC; the Ontario Public Service Act does not apply to OSC employees.

5. Mr. X is sent by the OSC to the Financial Services Authority ("FSA") in the UK on secondment. During time in the UK, Mr. X will remain an employee of the OSC but render services to the FSA. Mr. X has no other employment during the same period.

6. Mr. X will be paid solely by the OSC for the services rendered to the FSA. All employment remuneration including salary, bonuses and cost of living allowances (the "Remuneration") will be paid by the OSC to Mr. X into a Canadian bank account.

7. Under UK tax law, Mr. X is a resident of the UK. For purposes of the Act, Mr. X is considered factually resident in Canada. Mr. X's permanent home in Canada remains available to him while he is on secondment in the UK and his personal and economic interests for purposes of the Treaty are in Canada.

The question you raised is whether Mr. X can obtain the benefit of Article 18 of the Treaty.

Our Comments

Written confirmation of the tax implications inherent in real transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. However, we are prepared to provide you with the following general comments.

Based on the hypothetical facts, Mr. X rendered services to the FSA, not the OSC while on secondment in the UK. Furthermore, the OSC is not a "political subdivision" or "local authority" for the purposes of the Treaty. Accordingly, paragraph (a) of Article 18(1) will not apply.

Mr. X is a resident of both UK and Canada under their domestic laws, within the meaning of paragraph 1, Article 4. By operation of subparagraph 2(a) of Article 4 of the Treaty, Mr. X will continue to be a resident of Canada, not the UK during his secondment. As such, Mr. X will not meet the opening words of paragraph (b) of Article 18(1) that requires the person to be a resident of the Contracting State in which the services are rendered, i.e. the UK. Under Article 15 of the Treaty, the Remuneration derived by Mr. X, as a resident of Canada, in respect of employment exercised in the UK, may be taxed in the UK, i.e. the Treaty allows for both the UK and Canada to tax the same amount under their domestic laws.

As Mr. X remains a resident of Canada during his secondment to the UK, he will be required to file a Canadian income tax return pursuant to the provisions of paragraph 150(1)(d) of the Income Tax Act (the "Act") for taxation year 2004 and report the Remuneration paid by the OSC as employment income. However, Mr. X will be entitled to foreign tax credits pursuant to section 126 of the Act in respect of any UK tax paid by him on income from employment exercised in the UK.

We trust that the foregoing will be of assistance to you.

Yours truly

Olli Laurikainen
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch