2 June 1986 Income Tax Severed Letter 5-1401 - [860602]

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.

D.S. Delorey (613) 957-2129

June 2, 1986

Dear XXX

This is in reply to your letter of March 18 concerning income earned by you as an employee of the Canadian Consulate General XXX

You state that you are a Canadian citizen and that you have been residing in the U.S. on a permanent basis since 1958. Currently, you are obliged to pay Canadian income tax on the subject income but you plan to become a U.S. citizen, after which it will become mandatory for you to pay taxes to the U.S. You ask our advice on the steps necessary to have your employer cease making deductions from your paycheque on behalf of Canadian income taxes, once you become obligated to pay U.S. taxes.

We will first discuss the provisions of the Canadian Income Tax Act (the "Act") which apply to tax your income from employment with the Canadian Consulate General. Your Canadian income tax liability currently arises as a result of one of the following:

A. If you were a resident of Canada immediately prior to becoming an employee of the Canadian Consulate General or if you receive representation allowances from your Canadian employer, you are taxable in Canada on your world income pursuant to paragraph 250(1)(c) of the Act, except to the extent that such income is exempted by virtue of the 1980 Canada-U.S. Income Tax Convention (the "Convention"). Normally, Article XV of that Convention will exempt a U.S. resident from Canadian taxes on employment income earned in the U.S. However, Article XV does not exempt such income if it is earned by a Canadian citizen employed with a Canadian Consulate General.

B. If the deeming provisions of paragraph 250(1)(c) of the Act are not applicable, you are nevertheless taxable in Canada pursuant to subparagraph 115(2)(e)(i) of the Act on the income earned as an employee of the Canadian Consulate General since, by virtue of Article XIX of the Convention, such income is not currently taxable in the U.S. However, once you are no longer a Canadian citizen, this employment income will be taxable in the U.S. and, thus, it will not be taxable in Canada under subparagraph 115(2)(e)(i) of the Act because of clause (A) thereof.

In summary, once you are no longer a Canadian citizen, your income earned as an employee of the Canadian Consulate General in XXX will not be taxable in Canada under either of the above provisions. Accordingly, once you become a non-citizen of Canada, we suggest that you present a copy of this letter to your employer and ask that they write to the following address for authority not to withhold on account of Canadian taxes.

Revenue Canada, Taxation Head Office Accounting and Collections Division 875 Heron Road Ottawa, Ontario K1A 0L8

We trust that the above comments will be of assistance.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch