4 September 2012 External T.I. 2012-0454881E5 - Treatment of services performed for 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: 1. Is an individual (“Taxpayer”) who works for a Canadian university (“University”) subject to withholding on the work performed by the Taxpayer for XXXXXXXXXX in respect of a contract between XXXXXXXXXX and the University?
2. Are the amounts earned by the Taxpayer in respect of work performed for XXXXXXXXXX exempt from taxation for Canadian tax purposes?
3. If XXXXXXXXXX contracted the Taxpayer directly, would the amounts earned by the Taxpayer in respect of work performed for XXXXXXXXXX be exempt from taxation for Canadian tax purposes?

Position: Q1: Yes.
Q2: No.
Q3: Question of fact.

Reasons: 1. All amounts received by an employee from the employer that are not income from business of the employee are included in "salary or wages" and therefore subject to withholding under 153(1)(a). 2. Income earned by employee is not income from employment with XXXXXXXXXX therefore it is not eligible for a deduction under 110(1)(f)(iii). 3. Question of fact.

XXXXXXXXXX
2012-045488
W. Doiron

September 4, 2012

Dear XXXXXXXXXX:

Re: Proper tax treatment in relation to services performed for XXXXXXXXXX

This letter is in response to your email which raises the following questions:

1. Is a Canadian-resident individual (“Individual”) who is employed by a Canadian university (“University”) subject to withholding on the work performed by the Individual for XXXXXXXXXX in respect of a contract between XXXXXXXXXX and the University?

2. Are the amounts earned by the Individual in respect of work performed for XXXXXXXXXX exempt from taxation for Canadian tax purposes?

3. If XXXXXXXXXX contracted the Individual directly, would the amounts earned by the Individual in respect of work performed for XXXXXXXXXX be exempt from taxation for Canadian tax purposes?

The particular situation outlined in your email appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the “Act”).

General comments

In your submission, you have provided us with a copy of a contract that is between the University and XXXXXXXXXX. In addition, based on the documentation provided, it appears that the Individual is an employee of the University.

Question 1

Paragraph 153(1)(a) establishes the requirement that the University must withhold source deductions in respect of salary, wages or other remuneration paid to the Individual which includes all fees received for services rendered as an employee of the University such as the amounts the Individual receives from the University for the work performed for XXXXXXXXXX.

Question 2

There are no provisions in the Act which allow for income earned by a Canadian-resident individual in respect of work performed for XXXXXXXXXX to be exempt from taxation. However, subparagraph 110(1)(f)(iii) provides for a deduction from an individual’s taxable income in respect of an amount included in the individual’s income that is income from employment with a prescribed international organization. We can confirm that XXXXXXXXXX is considered to be a prescribed international organization.

The statutory definition of “employment” in subsection 248(1) means the position of an individual in the service of some other person as opposed to performing services for some other person. While the Individual is performing services for XXXXXXXXXX, subparagraph 110(1)(f)(iii) specifically states that the income must be income from employment with a prescribed international organization.

In this case, the Individual is in the employment of the University and not XXXXXXXXXX therefore the income in question would not be eligible for a deduction under subparagraph 110(1)(f)(iii).

Question 3

If XXXXXXXXXX contracted the Individual directly (instead of the University), the deduction under subparagraph 110(1)(f)(iii) would only apply to the Individual if the Individual were considered to be an employee of XXXXXXXXXX. Whether the Individual would be considered to be in the employment of XXXXXXXXXX would be a question of fact. However, assuming the contract between the Individual and XXXXXXXXXX would be the same as the contract provided by you in your submission, with the exception that the parties to the contract are the Individual and XXXXXXXXXX, it is our view that the Individual would be considered an independent contractor, not an employee of XXXXXXXXXX, therefore, the deduction under subparagraph 110(1)(f)(iii) would not apply to the Individual.

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch