3 February 2009 External T.I. 2008-0299121E5 - Foreign Income and Expenses - Residency

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: What are the requirements to file a Canadian income tax return where a Canadian citizen is working at foreign hospital? Are certain expenses paid by the individual to obtain certification as a medical doctor in the foreign jurisdiction deductible?

Position: General comments only.

Reasons: Don't have all the facts so we are in no position to provide specific comments.

XXXXXXXXXX 2008-029912
Michael Cooke, CA
February 3, 2009

Dear XXXXXXXXXX :

Re: Foreign Income, Deductibility of Expenses and Residency Status

We are writing in reply to your letter dated August 6, 2008, concerning your requirement to file a Canadian income tax filing for 2008 and beyond.

In your letter you state that you are a Canadian citizen who, for the last four years, has been a medical student in the United States. You also state that you have claimed the tuition and education amounts on your Canadian tax returns for the last four years. You recently accepted a three year position as a medical resident at a hospital in California. You ask whether you will be required to file a Canadian income tax return while working at the hospital and whether certain expenses paid by you to obtain certification as a medical doctor in the United States are deductible.

The particular situation outlined in your letter appears, at least in part, to involve completed transactions. The Directorate does not provide written interpretations involving completed transactions since, as mentioned in paragraph 22 of Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002 ("IC-70-6R5"), such requests should be addressed to the appropriate Canada Revenue Agency ("CRA") Tax Services Office, a list of which are available on the "Contact Us" page of our website at http://www.cra-arc.gc.ca. In addition IC-70-6R5 and the other publications referred to in this letter are also available on our website. While we are unable to respond specifically to your questions we can provide the following general comments.

Liability for income tax

The liability for income tax in Canada is based on the taxpayer's residency which can only be determined based on the facts. Individuals who are resident in Canada for income tax purposes are liable for Canadian income tax on income from all domestic and foreign sources (i.e. "world income") including income from employment, business, investments, pensions, etc. Individuals who are not resident in Canada for income tax purposes are generally only liable for Canadian income tax on income from Canadian sources. In addition, where a Canadian resident is required to pay an income or profits tax to a foreign jurisdiction on income that is sourced in that foreign jurisdiction a Canadian foreign tax credit may be deducted in computing any Canadian income tax payable. For additional details on the foreign tax credit rules please refer to Interpretation Bulletin IT-270R3, Foreign Tax Credit.

Determination of residence

An individual will be considered a resident of Canada when the individual is either a factual or deemed resident of Canada. Factual residency is not defined in the Income Tax Act (the "Act") but is based on common law principles of residency and concerns the residential ties which an individual has in fact established within Canada. In this regard you should refer to Interpretation Bulletin IT-221R3, Determination of an Individual's Residence Status for additional assistance on this topic. Anyone who requires clarification of their Canadian residency status for income tax purposes should complete Form NR73, Determination of Residency Status (leaving Canada) and send the completed form to the CRA's International Tax Service Office at the address listed on the form.

Where during a taxation year an individual either ceases to be a resident of Canada for income tax purposes or becomes a resident of Canada special income computation rules apply. The following CRA publications: T4131, Canadian Residents Abroad and T4056 Emigrants and Income Tax are intended to assist Canadian residents who leave Canada to work abroad or for other reasons.

Deductibility of examination fees and related travel costs

Where an individual is required to pay examination fees and related expenses in order to obtain a license to practise a particular profession, such as a medical doctor, such fees would normally not qualify for the tuition tax credit unless they are paid to a designated educational institution and they form an integral part of a course of study.

Notwithstanding the above, where the examination fees and related costs can be expected to result in an enduring benefit, they may qualify as "eligible capital expenditures," defined in subsection 14(5) of the Act, provided that they were incurred by the individual for the purpose of earning income from a business carried on by him or her. If so, a portion may be deducted each year in computing the income from that business pursuant to paragraph 20(1)(b) of the Act. Please refer to Interpretation Bulletins IT-123R6, Transactions Involving Eligible Capital Property, and IT- 143R3, Meaning of Eligible Capital Expenditure, for more details.

Finally, it should be noted that no deduction is available if the examination fees and related costs were incurred for the purpose of earning employment income.

We trust our comments will be of assistance to you.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch