3 July 1986 Income Tax Severed Letter 5-1724 - [Residency "tie breaker" rules]

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) 957-2125

Attention XXX

July 3, 1986

Dear Sirs:

This is in reply to your letter of May 27 concerning the residency "tie breaker" rules set out in Article IV of the 1980 Canada-U.S. Income Tax Convention (the "U.S. Convention").

Your particular situation concerns a taxpayer who is a citizen of the United States. His permanent home is located in the U.S. and his wife and children reside there throughout the year. He does not own or lease a dwelling in Canada. The taxpayer is employed by a U.S. company which owns a Canadian subsidiary. During the year, he physically works in Canada, under the direction and control of the Canadian subsidiary, for periods totalling more than 183 days. He is paid through a U.S. payroll but the portion of his salary attributable to his work in Canada is charged back to the Canadian subsidiary. This amount exceeds Cdn. $10,000 for the year and represents less than 90% of the taxpayer's total income for the year.

Assuming that the taxpayer is considered to be sojourning in Canada (i.e., he is not factually resident in Canada or is not simply commuting) paragraph 250(1)(a) of the Income Tax Act (the "Act") will apply to deem him to have been resident in Canada throughout the taxation year. The residency rules set out in Article IV of the U.S. Convention do not override the deeming provisions of paragraph 250(1)(a) of the Act. Rather, since the opening words of Article IV read "For the purposes of this Convention", those residency rules are relevant only for the purpose of determining the extent to which another Article of the U.S. Convention might exempt certain income from Canadian tax.

The effect of the above is that the taxpayer is taxable under subsection 2(1) of the Act on his world income. This income, by virtue of the exception in paragraph 81(1)(a) of the Act, will include amounts not taxable pursuant to the U.S. Convention. The taxpayer can then look to subparagraph 110(1)(f)(i) of the Act for a deduction of those amounts. For example, since pursuant to Article IV of the U.S. Convention, the taxpayer will be considered a resident of the U.S. for the purposes of the Convention, Article XV thereof dictates that he is not taxable in Canada on employment income earned elsewhere, and Article XXII thereof dictates that he is not taxable in Canada on interest and dividend income sourced elsewhere.

We trust the above comments will be of assistance.

Yours truly,

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

81(1)(a) 110(1)(f)(i) 250(1)(a) Art. IV - new U.S. Treaty