8 February 2006 External T.I. 2004-0075441E5 - Employment in international traffic

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 Canada is precluded (by virtue of paragraph 14(3) of the Canada-Korea Tax Convention) from taxing a Canadian resident individual's income from employment in respect of personal services as a pilot aboard an aircraft operated in international traffic by an airline resident in the Republic of Korea ?

Position:

Yes

Reasons: Paragraph 3 of Article 14 exempts from Canadian tax the remuneration described above of a Canadian pilot.

								2004-007544
XXXXXXXXXX 							Isabeau Morrissette
(613) 957-2118
February 8, 2006

Dear XXXXXXXXXX:

Re: Canada-Republic of Korea Tax Convention

We are writing in response to your letter dated April 5, 2004 regarding the application of article 14 of the Tax Convention between Canada and the Republic of Korea (the "Convention"). While we already offered you general comments regarding this question via telephone, you requested that we confirm our answer in an official letter from the Canada Revenue Agency.

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments which may be of assistance.

Paragraph 1 of Article 14 of the Convention provides generally that remuneration derived by a resident of a Contracting State in respect of personal services shall be taxable only in that State unless the services are rendered in the other Contracting State. If the services are so rendered, such remuneration as is derived therefrom may be taxed in that other State. This does not preclude the state of residence (in this case Canada) from taxing the remuneration, it simply allows the source state (in this case Korea) the right to tax the remuneration.

However, paragraph 3 of Article 14 of the Convention specifically provides that remuneration in respect of employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State. Therefore, we agree with your interpretation that the remuneration received by a Canadian resident in respect of his work as a pilot aboard an aircraft operated in international traffic by a Korean airline company would be exempt from Canadian income taxes.

For Canadian tax purposes, the Canadian pilot will have to include these payments in his income but he would be entitled to an offsetting deduction under subparagraph 110(1)(f)(i) of the Income Tax Act.

Please note that the above comments are an expression of opinion only and are not binding on the Canada Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R5.

We trust our comments are of assistance.

Olli Laurikainen CA
International Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch