11 March 2009 Internal T.I. 2008-0303131I7 - XXXXXXXXXX and the Northern Resident Deduction

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 a XXXXXXXXXX member qualifies for 1) the basic residency deduction; and 2) the additional residency deduction.

Position: It is a question of fact but likely 1) yes; and 2) no.

Reasons: 1) Where the six consecutive month requirement is met regarding living in a prescribed zone, the basic residency deduction would be allowable to a XXXXXXXXXX . 2) It is unlikely that a "self-contained domestic establishment" exists if XXXXXXXXXX , it is unlikely that a XXXXXXXXXX can be considered to have been the individual taxpayer who maintained the "self-contained domestic establishment".

 								March 11, 2009

Mr. Paul Loshuk						HEADQUARTERS
Validation Policies and Procedures Section	Kathryn McCarthy CA
Assessment Reviews and Adjustments Division

	Attention: P. Loshuk
								2008-030313

XXXXXXXXXX and the Northern Resident Deduction

We are writing in response to your e-mail of December 9, 2008, and subsequent voice mail exchanges in January of 2009 (McCarthy/Loshuk). You enquired as to whether a XXXXXXXXXX member qualifies for the northern resident deduction under section 110.7 of the Income Tax Act ("the Act") and, if yes, whether there is a risk of "double dipping" if the XXXXXXXXXX trust also deducts such housing costs in completing its T3 return.

A XXXXXXXXXX generally qualifies as a "communal organization" under section 143 of the Act. As such, the property of the congregation is considered the property of an inter vivos trust, the beneficiaries of which are the members of the XXXXXXXXXX . Section 143 sets out various rules for computing the tax of the trust and the income of the members.

XXXXXXXXXX

Basic Residency Deduction

In computing an individual's taxable income for a taxation year, section 110.7 of the Act provides a special deduction in respect of certain living costs where the individual resides, throughout a period of at least 6 consecutive months commencing or ending in the year (referred to as the "qualifying period"), in a "prescribed northern zone" or a "prescribed intermediate zone" (identified in section 7303.1 of the Income Tax Regulations). We agree that as long as the six consecutive month requirement is met regarding living in a prescribed zone, the basic residency deduction under clause 110.7(1)(b)(ii)(A) of the Act would likely be available to a XXXXXXXXXX .

Additional Residency Deduction

Clause 110.7(1)(b)(ii)(B) of the Act provides for an additional residency deduction for those days where an individual taxpayer maintains and resides in a self-contained domestic establishment ("SCDE") in a prescribed zone and is the only person who lives in the SCDE and claims a residency deduction under clause 110.7(1)(b)(ii)(A) or (B). An SCDE is defined in subsection 248(1) of the Act as a dwelling-house, apartment or other similar place of residence in which place a person as a general rule sleeps and eats.

XXXXXXXXXX

Double Dipping Concern

Pursuant to paragraph 143(1)(k) of the Act, a communal organization is precluded from deducting housing and other personal expenses paid in respect of its members in computing trust income. Accordingly, even if we were to consider a XXXXXXXXXX to be an individual taxpayer who maintains and resides in an SCDE, and the XXXXXXXXXX claimed the additional residency deduction, this would not result in a deduction by the individual for expenses already deducted by the trust.

We trust our comments will be of assistance to you.

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