19 January 2012 External T.I. 2011-0425891E5 - Art 19 Canada-China Treaty & Immigration

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: 1. What effect does an application for Canadian permanent residency have on the ability to claim benefits under Article 19 of the Treaty, and is the result different if the application is voluntarily withdrawn or refused?
2. If the individual's permanent residency application is withdrawn or refused, and the individual then applies again under a different application category and is approved, at what time does the individual no longer qualify for benefits under the Treaty and does it matter if the second application is submitted before the first application is withdrawn or refused?

Position: 1 & 2. Questions of fact specific to the individual. Absent evidence to the contrary, applications for permanent residence can be viewed as strong evidence of an intent to go beyond merely visiting Canada and that an individual's presence in Canada is also meant to establish lasting residential ties.

Reasons: 1 & 2. Immigration status is informative but not determinative of residency and residency-related issues for tax purposes. Applications for permanent residence, their acceptance, denial or withdrawal are all facts that must be considered in light of the individual's total circumstances in determining their tax-residency. They are also facts which inform on whether or not an individuals intention to "visit" Canada was truly temporary for the purposes of education or training, or if it instead went beyond the scope contemplated by Article 19.

XXXXXXXXXX 
					2011-042589
					Eli Kae Moore

January 19, 2012

Dear XXXXXXXXXX ,

Re: Article 19 of Canada-China Tax Convention

We are responding to your letter of August 21, 2011, forwarded to us from the XXXXXXXXXX Tax Centre wherein you requested the Canada Revenue Agency's ("CRA") views regarding the application of Article 19 of the Agreement Between the Government of Canada and the Government of the People's Republic of China For the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the "Treaty") where the taxpayer applies for Canadian permanent residency.

You asked us to consider the following fact pattern:

An individual who is a citizen of the People's Republic of China comes to Canada to work as a post-doctoral fellow at a Canadian university. During their time spent as a post-doctoral fellow they receive scholarship income from the university. Approximately three years after arriving in Canada the individual applies for Canadian permanent residency.

Based on the above fact pattern you asked us for our views on the following issues, as paraphrased below:

1. What effect does the application for Canadian permanent residency have on the individual's ability to claim benefits under Article 19 of the Treaty, and is the result different if the application is voluntarily withdrawn or refused?

2. If the individual's permanent residency application is withdrawn or refused, and the individual then applies again under a different application category and is approved, at what time does the individual no longer qualify for benefits under the Treaty and does it matter if the second application is submitted before the first application is withdrawn or refused?

Our Comments:

Article 19 of the Treaty currently reads in English as follows:

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that Contracting State.

In order to obtain the benefits of Article 19, the individual must meet the following four requirements:

(1) The individual must be a student, apprentice or business trainee;

(2) The individual must be a resident of the People's Republic China, or must have been a resident of the People's Republic of China immediately before visiting Canada;

(3) The individual must be temporarily present in Canada solely for the purpose of his or her education or training; and

(4) The payment must be received by the individual for the purpose of his or her maintenance, education or training.

Each requirement is a question of fact and is specific to the individual and his or her circumstances. Your questions and the facts you have provided to us relate primarily to the third requirement listed above.

In determining if the individual has met the third requirement, that the individual must be temporarily present in Canada solely for the purpose of his or her education or training, applications for permanent residency may be taken into account. Article 19 requires that the individual be "visiting" Canada "solely for the purpose of his education or training." If the individual has any other purpose for their presence in Canada, or if they do not intend for their stay to be temporary, they cannot benefit from Article 19.

Immigration status, such an application for permanent residency status or even obtaining permanent residency status is not necessarily determinative but is very informative of the individual's intentions regarding the permanency of their stay in Canada. This is illustrated in the majority opinion of the Federal Court of Appeal in the case of Li v The Queen, 94 DTC 6059, wherein then Chief Justice McDonald wrote:

[T]he presence in Canada of which the Article speaks, as a prerequisite to its successful invocation, is a temporary one. Here, the Applicant was a visitor and as such he was entitled to claim the benefit of Article 19 while he retained that status in Canada. However, for reasons of his own, he chose to make application to become a landed immigrant, thus evidencing an intention to remain in Canada permanently. This intention was actualized when he was granted landed immigrant status on July 13, 1990. In these circumstances the Applicant cannot, in my view, properly invoke Article 19 of the Agreement for his benefit.

In response to your first question, without strong factors to the contrary (such as a lack of other residential ties to Canada plus strong residential ties to the People's Republic of China), applying for and obtaining permanent residency status in Canada will most often lead to the conclusion that an individual was not intending their presence in Canada to be temporary, that is, that they are no longer "visiting" as required by Article 19. However, voluntarily withdrawing an application for permanent residency must also be considered and may lead credence to the position that the individual does intend their stay to be temporary.

In response to your second question, the second application for permanent residency will be looked at in the same light as the first application. It is likely that the second application will be viewed as a continued demonstration of the individual's intent to make their stay permanent. As for the timing of a second permanent residence application, it is unlikely that its submission before the first is withdrawn or refused will have much bearing on the availability of Article 19, however this cannot be said for certain without looking at the individual's total circumstances.

In all cases, the totality of the facts surrounding the individual's presence in Canada must be examined. Due to the fact specific and personal nature of these determinations it is not possible for us to answer your questions with any more specificity.

Other Comments:

For the purposes of this letter we have focused on your concerns as they relate to the third requirement. However, as all four requirements must be met in order to benefit from Article 19, we offer the following general comments which may be of assistance:

First, for the first requirement, Article 19 uses the terms "apprentice" and "business trainee" together with the term "student", which suggests that the Article may reasonably be applied to a postdoctoral fellow as an individual who is required to undertake a period of training after completing their studies but before pursuing an independent professional career.

Second, the Treaty provides tax relief to residents of the People's Republic of China and Canada and is not specific to citizens of these countries. The facts outlined in your letter do not specify whether or not the individual in question is, or immediately before coming to Canada, was a resident of the People's Republic of China for purposes of the Treaty. A Chinese citizen who was not a resident of the People's Republic of China for purposes of the Treaty before coming to Canada would not meet the second requirement for benefits under Article 19.

And finally, for the fourth requirement, the scholarship income received must be for the individual's maintenance costs, education costs or training costs and the payments must not be in excess of those costs. Money spent on, but that is not received specifically for the purposes of the individual's maintenance, education or training is not covered by Article 19. This is the case for money earned through employment which is not an integral part of the individual's education or training, such as a second unrelated job. In addition, if the individual earns income in excess of what is required for their maintenance, education or training, it will be more difficult for the individual to sustain the argument that he or she was present in Canada solely for the purpose of education or training.

Please be aware that Canada and the People's Republic of China are currently in the process of renegotiating the Treaty. The views expressed in this letter are in relation to the Treaty as it read at the time of this letter's writing. Nothing in this letter should be taken as expressing an opinion of any kind on the contents of or the interpretation of the Treaty in its future, renegotiated form.

We trust these comments are of assistance.

Sincerely,

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