8 November 2007 External T.I. 2007-0222831E5 - XXXXXXXXXX

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: Is employment income, received from the XXXXXXXXXX by Canadian citizens who are residents of Canada and who are not residents of the United States, exempt from taxation in Canada?

Position: The employment income is taxable in Canada.

Reasons: According to subsection 5(3) of the Foreign Missions and International Organizations Act, nothing in subsection 5(1) of the FMIOA exempts a Canadian citizen, residing or ordinarily resident in Canada, from liability for any taxes or duties imposed by any law in Canada. It is not a prescribed international organization for purposes of paragraph 110(1)(f) of the Act.

XXXXXXXXXX 							2007-022283
								Sylvie Labarre, CA
November 8, 2007

Dear Sir:

Re: International Organization

This is in reply to your letter received on December 29, 2006 in which you requested our opinion on whether Canadian citizens who are residents of Canada and who are employed by the XXXXXXXXXX are exempt from taxation in Canada on their employment income.

Generally, the tax status of an individual who works for an organization such as the XXXXXXXXXX will depend on whether the individual is:

- A resident of Canada for purposes of the Income Tax Act (hereinafter the "Act");

- Exempt from tax under the Foreign Missions and International Organizations Act (the "FMIOA"); and

- A resident of United States under the Canada-USA Tax Convention.

For the purposes of this letter, we assume that the Canadians are not resident of United States under the Canada-USA Tax Convention.

Part I of the Act levies an income tax on the worldwide income of residents of Canada, and on certain Canadian-source income earned by non-residents. According to your letter, the Canadians who are employed by your organization are residents of Canada.

Although a person might be a resident of Canada for purposes of the Act and therefore, prima facie, subject to Canadian tax on his or her worldwide income, part or all of that individual's income may be exempt from tax by virtue of the interaction of paragraph 81(1)(a) of the Act and the FMIOA. Subsection 5(1) of the FMIOA provides that the Governor General in Council may, by order, grant to officials of specified international organizations certain of the privileges and immunities set out in the Convention on the Privileges and Immunities of the United Nations (the "U.N. Convention"). Section 18 of the U.N. Convention provides that officials of the United Nations are exempt from tax on the "salaries and emoluments" paid to them by the United Nations. However, no such order was granted to officials of the XXXXXXXXXX.

Furthermore, subsection 5(3) of the FMIOA sets out an exception. It provides that nothing in subsection 5(1) of the FMIOA exempts a Canadian citizen, residing or ordinarily resident in Canada, from liability for any taxes or duties imposed by any law in Canada. In your letter, you mentioned that the Canadians employed by your organization are Canadian citizens and are residents of Canada. Therefore, they could not avail themselves of subsection 5(1) of the FMIOA even if an order had been granted to the international organization and they would be taxable on their employment income received from the XXXXXXXXXX.

Interpretation Bulletins do not have the force of law. Furthermore, paragraph 3 of Interpretation Bulletin IT-397R uses the expression "generally provides", indicating that there could be exceptions to the general rules. Paragraph 3 of the Bulletin should be read in conjunction with paragraph 5 of that Bulletin which mentions the designation by the Governor in Council condition and which may explain the exception for the Canadian citizen resident in Canada.

The XXXXXXXXXX is not a "prescribed international organization" for the purposes of the deduction under paragraph 110(1)(f) of the Act to which an employee of such a prescribed international organization would have been entitled in computing taxable income (deduction equal to their income from employment with that particular organization).

We trust the above comments will be of assistance. We apologize for the delay in responding.

Yours truly,

Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch