2004 Ruling 2004-0099101R3 - Special Work Site

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: Advance income tax ruling request that a work location, which was previously considered a special work site for certain employees of the employer under an advance income tax ruling previously issued by the Canada Revenue Agency (2002-012699), is still a special work site for certain of the original employees who have been extended for a period of up to two more years.

Position: Yes.

Reasons: Employees otherwise met the provisions of 6(6) of the Act and the duties in this specific case are considered of a temporary nature.

XXXXXXXXXX 2004-009910

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request - XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX (hereafter, the "Employer"). Your request pertains to the application of the special work site provision under subsection 6(6) of the Income Tax Act for certain employees of the Employer and is supplemental to an advance income tax ruling previously issued by the Canada Revenue Agency (hereafter, the "CRA") on this subject that is dated XXXXXXXXXX, 2002 (file reference 2002-012699).

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request:

(i) is in an earlier return of a taxpayer or a related person;

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of a taxpayer or a related person;

(iii) is under objection by a taxpayer or a related person;

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and

(v) is the subject of a ruling previously issued by the CRA.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Definitions

1. "Campus" is a location in XXXXXXXXXX where the Employer has a contract with that country's government to provide educational programs and courses at the post-secondary level.

2. "Secondees" are employees who are currently working for the Employer at the Campus under an agreement with the Employer that assigned them to the Campus to perform their regular duties of employment for the duration of the Original Secondment Period, thus enabling the Employer to carry out its contractual obligations.

3. "Original Secondment Period" is the XXXXXXXXXX period the Secondees were first seconded by the Employer to the Campus.

Facts

4. The Employer is a Canadian resident corporation that is a teaching institution operating in Canada.

5. The Employer's contract at the Campus includes a start-up period XXXXXXXXXX (hereafter, the "Start-up Period"), and an operational period that will run XXXXXXXXXX (hereafter, the "Operational Period").

6. Educational programs offered at the Campus by the Employer are of a one, two and three-year duration.

7. The Employer's contractual obligations at the Campus include:

(a) The delivery of a fully operational college at the Campus so that instruction for the first class of entering students commenced by the end of the Start-up Period;

(b) During the Operational Period, the operation and management of the Campus;

(c) The transfer to the Campus of its academic, industrial, business and management practices that would be required for a smooth operation of the Campus;

(d) All steps necessary to ensure that the programs of study offered at the Campus are accredited academically and professionally by the same agencies that accredit corresponding programs of the Employer in Canada;

(e) The recruitment, employment and management of all administrative personnel, faculty and staff for the Campus;

(f) The recruitment, admittance and enrolment of students to the Campus;

(g) All steps necessary to ensure that programs offered at the Campus are equal in quality to corresponding programs offered by the Employer in Canada; and

(h) To the extent approved, the responsibility for procuring, maintaining and servicing all equipment, fixtures, systems, materials and other supplies necessary for the commencement of instruction at the Campus by the end of the Start-up Period, and the operation of the Campus during the Operational Period.

8. Prior to commencement of the Operational Period, the Employer entered into individual employment contracts with the Secondees, which provided for a temporary assignment of the Secondees employment duties to the Campus for the duration of the Original Secondment Period.

9. The Secondees signed individual employment contracts with respect to the temporary assignment of their employment duties to the Campus, which provided that they would:

(a) Continue to be employed by and paid by the Employer;

(b) Retain the seniority rights they held with the Employer;

(c) Continue to be paying members in the Employer's registered pension plan;

(d) Continue to hold union membership, if applicable; and

(e) Be integrated back into the Employer's operations in Canada at the end of the Original Secondment Period.

10. The Secondees were taxable as residents of Canada under subsection 2(1) of the Act throughout the duration of the Original Secondment Period.

11. During the Original Secondment Period, the Secondees received a remuneration and benefits package at the Campus, which included:

(a) Board and lodging comprised of a per diem allowance of $XXXXXXXXXX (US) while physically present at the Campus, intended to offset the additional expenses incurred by the Secondees while living at the Campus, such as the costs associated with food purchases, and housing provided by the government of the country where the Campus is located, with a value between $XXXXXXXXXX (US) and $XXXXXXXXXX (US), such housing being based on job classification; and

(b) An annual trip directly from the Campus to the Secondees place of residence in Canada for the employee and his or her family, paid by the government of the country where the Campus is located, with a value between $XXXXXXXXXX (US) and $XXXXXXXXXX (US) per person.

12. During the Original Secondment Period, the Secondees maintained self-contained domestic establishments in Canada as their principal place of residence that was available for their occupancy and not rented to any other person, were not expected to return daily to their principal place of residence because of the distance from the Campus, and were away from their principal place of residence for periods of 36 hours or more because their duties at the Campus.

13. The Secondees completed Form TD4 "Declaration of Exemption - Employment at a Special Work Site" for each taxation year during the Original Secondment Period and filed that form with the Employer.

14. On the basis of the facts described above, the CRA issued an advance income tax ruling dated XXXXXXXXXX, 2002 (file reference 2002-012699), which ruled that provided the amounts described in paragraph 11 above were reasonable for each of the Secondees, the Campus would constitute a special work site within the meaning assigned to that term in subsection 6(6) of the Act, thereby excluding such amounts from the employment income of the Secondees for the Original Secondment Period. Further, that subsection 245(2) would not apply to redetermine the tax consequences of that ruling.

Proposed Transactions

15. For XXXXXXXXXX Secondees that were originally assigned to the Campus (hereafter, the "Extended Secondees"), the Employer will extend the duties of employment at the Campus under the contract described in paragraphs 8 and 9 above (hereafter the "Secondment Period Extension").

16. The Extended Secondees include employees who are management, support staff and faculty.

17. The Secondment Period Extension will be for a period not exceeding two-years beyond the Original Secondment Period.

18. The Extended Secondees will continue to be taxable as residents of Canada under subsection 2(1) of the Act for the duration of the Secondment Period Extension, and will continue to receive the benefits described in paragraph 11 above.

19. During the Secondment Period Extension, the Extended Secondees will continue to maintain self-contained domestic establishments in Canada as their principal place of residence that will be available for their occupancy and not rented to any other person, will not be expected to return daily to their principal place of residence because of the distance from the Campus, and will be away from their principal place of residence for periods of 36 hours or more because of their duties at the Campus.

20. The Extended Secondees will complete Form TD4 "Declaration of Exemption - Employment at a Special Work Site" for each taxation year during the Secondment Period Extension and will file that form with the Employer.

Purpose of the Proposed Transactions

21. The Employer has requested that the Extended Secondees continue their duties of employment at the Campus for the Secondment Period Extension for the following reasons:

(a) The Employer wants to ensure teaching stability for some students who have not achieved the academic standing required to graduate and have to repeat certain courses;

(b) The Employer has not been able to recruit a sufficient number of teaching professionals to meet its faculty requirements;

(c) The construction of certain facilities at the Campus has experienced delays and is not yet complete;

(d) Delays have been experienced in linking the management information and data systems at the Campus with the Employer's facilities in Canada; and

(e) The Employer wants to ensure continuity between the transition from the Start-up Period to the Operational Period.

Rulings Given

22. Provided that:

(a) The preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions;

(b) The proposed transactions are completed in the manner described above; and

(c) There are no other transactions, which may be relevant to the ruling requested,

our rulings are as follows:

A. Provided the amounts described in paragraph 11 above are reasonable for each of the Extended Secondees, we confirm that for purposes of subsection 6(6) of the Act the Campus will constitute a "special work site" for the Extended Secondees, thereby excluding the benefits described in paragraph 11 above from employment income for each of the Extended Secondees for the duration of the Secondment Period Extension; and

B. Subsection 245(2) will not apply to redetermine the tax consequences in the ruling given in A above.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued on May 17, 2002 by the CRA, and are binding on the CRA provided that the proposed transactions are implemented on or before XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Except as expressly stated, these rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch