Principal Issues: How are CERB Payments received in the 2020 and 2021 years by an individual that is a non-resident of Canada for purposes of the Act taxed in Canada?
Position: The CERB Payments are subject to Part I tax (including federal surtax). If the Non-Resident is resident in a country with which Canada has an income tax Convention, Canada will maintain its right to tax by virtue of the Other Income Article of the relevant Income Tax Convention and the Non-Resident's country of residence will be required to provide relief for double taxation.
Reasons: Pursuant to new subparagraphs 56(1)(r)(iv.1) and 115(1)(a)(iii.22) (which are deemed to have into force on January 1, 2020), CERB Payments are required to be included in computing the taxable income earned in Canada of a Non-Resident recipient of such CERB Payments. Since Regulation 2602 does not refer to amounts included in income pursuant to new subparagraph 115(1)(a)(iii.22), CERB Payments are subject to the federal surtax pursuant to subsection 120(1). If a Non-Resident recipient of CERB Payments is resident in a country with which Canada has a Treaty, in our view, the CERB Payments are analogous to employment insurance compensation and the “Other Income” Article of the relevant Treaty will apply to determine whether Canada can maintain its right to tax the CERB Payments. On that basis, Canada will generally have the right to tax CERB Payments without restriction.
Pursuant to the Elimination from Double Taxation Article of the relevant Treaty, the Non-Resident’s country of residence as determined under the Residence Article of the relevant Treaty will be required to provide relief from double taxation either in the form of a credit or of a deduction for the Canadian income taxes paid or accrued in respect of CERB Payments in accordance with the “Other Income” Article of the relevant Treaty.
