21 November 2023 Internal T.I. 2021-0880101I7 - Article 5(3)(b) of the Canada-Mexico Treaty

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: How to compute the term “six months” contained in Article 5(3)(b) of the Canada-Mexico Treaty.

Position: For the purpose of Article 5(3)(b) of the Canada-Mexico Treaty, the term “six months” generally means the aggregation of the number of days in six months.

Reasons: The term “six months” in this context refers to the aggregate number of days measured by the number of months.

XXXXXXXXXX							HEADQUARTERS
Manager								Income Tax Rulings Directorate
Non-Resident Dispositions & International Waivers Section
Small and Medium Enterprises Directorate			Vicky Liu
Compliance Programs Branch – HQ					2021-088010

Subject: Article 5(3)(b) of Canada-Mexico Income Tax Convention

We are writing in response to your email dated February 4, 2021 requesting our views on the interpretation of the phrase “a period or periods aggregating more than six months within any twelve month period” contained in Article 5(3)(b) of the Canada-Mexico Income Tax Convention (the “Canada-Mexico Treaty”). In particular, you requested our views on how to compute the term “six months”. We apologize for the delay in our response.

Comments

The word “month” is not defined in the Canada-Mexico Treaty or the Income Tax Act (“Act”) therefore, pursuant to Article 3(2) of the Canada-Mexico Treaty, the meaning of an undefined term should be determined under Canadian domestic tax law.

Pursuant to subsection 35(1) of the Interpretation Act, a month means a calendar month. The calculation of a calendar month was discussed in Smith v. The Queen, 96 DTC 3246 (T.C.C.) (“Smith”) and in McCombie v. The Queen, 2000 DTC 3636 (T.C.C.) (“McCombie”). In both cases, the court was asked to determine whether the appellant resided “throughout a period of not less than 6 consecutive months” in a prescribed northern zone thereby entitling the appellant to a deduction under subsection 110.7(1) of the Act.

Smith concluded, based on the finding in The Queen v. Kayelle Management (Yukon) Inc., 94 DTC 6116 (F.C.A.) (“Kayelle”), that “a calendar month means a period calculated from a day in a month to the day numerically corresponding to that day in a following month less one”. Mr. Smith, having resided in a prescribed area for five months plus a day in a year and 14 days in the next year, did not qualify as having resided there “throughout” a period of 6 months. In McCombie, the Court concluded that a portion of a month cannot constitute a calendar month (the Appellant's residence in Cambridge Bay from June 18, 1997 to December 9, 1997 did not meet the requirement that she reside there […] “throughout a period ... of not less than six consecutive months”).

The testing periods involved in both Smith and McCombie relate to a consecutive period of months as reflected in the word “throughout”. Therefore, the calculation of a month addressed therein might not inform the interpretation of the words “periods aggregating more than six months within any twelve month period” in Article 5(3)(b) of the Canada-Mexico Treaty. We are not aware of any relevant Canadian court cases that discussed the calculation of a month in a situation where an aggregate number of months is involved.

Subsection 3(1) of the Interpretation Act provides that the Interpretation Act only applies where the statute in issue does not suggest a contrary interpretation. Subsection 35(1) of the Interpretation Act and the findings of the Court in McCombie are not directly applicable in determining the six month period in Article 5(3)(b) of the Canada-Mexico Treaty as the legislation includes any partial month activities by referring to “periods aggregating more than six months”.

Considering that the testing period of six months is not required to be consecutive, the only reasonable interpretation of the term “periods aggregating more than” six months within any twelve month period” is to aggregate the number of days equivalent to the number of months.

In addition, as Article 5(3)(b) of the Canada-Mexico Treaty was drafted based on Article 5(3)(b) of the 2001 UN Model Convention, the history of the UN Model Convention is instructive in interpreting the testing period. Since 2011, the “six months” test in Article 5(3)(b) of the UN Model Convention, has been replaced by the “183 days” test such that the provision reads “for a period or periods aggregating more than 183 days in any 12-month period commencing or ending in the fiscal year concerned”. (footnote 1) The “183 days” test remains unchanged in the 2021 version being the most recent version of the UN Model Convention. The change in the UN Model Convention supports the view that the Canada-Mexico Treaty intended to count the testing period of “six months” as the aggregation of the number of days in six months. Using 183 days as a measure is consistent with that interpretation.

Reading the reference to a twelve month period described in Article 5(3)(b) of the Canada-Mexico Treaty as a reference to the first day of Canadian presence included in the 183 days and ending 12 months less one day later is consistent with the finding of the Court in Kayelle.

In summary, for the purpose of Article 5(3)(b) of the Canada-Mexico Treaty, the term “six months” generally means the aggregation of the number of days in six months. The number of days in six months is 183 days for this provision as it is consistent with the 2011 version of the UN Model Convention.

Yours truly,

Angelina Argento
Manager
for Division Director
International Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Presumably the change reflects the reality that “more than six months” yields different day counts depending upon the months chosen.