28 October 1986 Income Tax Severed Letter 5-1999 - [861028]

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

October 28, 1986

This is in reply to your letter of July 27 concerning your planned visit to Canada as an exchange teacher.

You ask if your Canadian earnings as an exchange teacher will be taxable in Canada and at what rates. We assume that you are currently a resident of Australia under Australian domestic law and that you will be returning to Australia to reside there after your temporary stay in Canada.

Taxation in Canada is based on residency. A person who is considered a resident of Canada under domestic law is taxable on his world income. In this regard, a person who is not factually a resident of Canada is nevertheless deemed to be resident here throughout a taxation year (calendar year) if he sojourns in Canada for more than 182 days in that year. A non-resident of Canada is normally taxable only on income sourced in Canada.

However, in determining the residency status of an Australian resident temporarily visiting Canada, the provisions of Article 4 of the Canada-Australia Income Tax Convention must be considered. A photocopy of this Article 4 is enclosed. If the provisions of this Article 4 dictate that you be treated as a resident of Australia while here, the Canadian income tax implications will generally be as follows:

A. Your Canadian earnings as an exchange teacher will be subject to tax, unless the provisions of Article 15 of the Canada-Australia Income Tax Convention dictate otherwise. Enclosed is a photocopy of this Article 15.

B. Canadian sourced "unearned" income will be subject to a flat rate of tax on the gross amount thereof. For example, Canadian sourced interest and dividend income would be taxed at 15%, and Canadian sourced real property rental income would be taxed at 25%. This tax is payable at the time the related payment is made and is normally withheld by the payer.

Your earnings as an exchange teacher (and "unearned" income as well if you are taxable here on your world income) will be taxable at graduated rates and will be reported on a T1 General Income Tax Return. A copy of the latest (1985) available "general tax guide and return for residents of the province of Ontario" is enclosed. The information therein will assist you in estimating your approximate Canadian income tax liability, if any.

With respect to estimating your Canadian tax liability, we point out that a non-resident is not entitled to claim personal exemptions unless at least 90% of his income for the year is included in computing his taxable income earned in Canada for the year. We enclose a copy of the Special Release to Interpretation Bulletin IT-171 which discusses deductions permissible to a non-resident.

With respect to your question concerning the method of paying any Canadian tax liability on your Canadian employment earnings, an employer is required to withhold from each pay an amount on account of the employee's estimated tax liability for the year and to remit this to the Department on the employee's behalf. Any balance due is payable when the return for the year is filed (no later than April 30 of the following year). A claim for a refund of any overpayment would be made at this time.

At the present time, a resident of Australia who stays in Canada on a temporary basis as a non-resident and who is employed in Canada is required to contribute to the Canada Pension Plan. We understand that negotiations are now underway for an agreement between Canada and Australia which may provide relief from the requirement that a resident of one of the contracting States make contributions to some of the social security programs of the other state when he temporarily resides in that other state. No details are available at the present time.

Provincial income tax rates vary and thus, if you will not be residing in the province of Ontario, the provincial rates reflected in the enclosed return may not be appropriate. To obtain information on the different provincial rates, as well as any additional information, you should contact the district taxation office that services the area in which you will be residing while in Canada. The addresses of the various offices are listed in the following enclosed pamphlets:

"Filing Your First Return" "Living Outside Canada" "Immigrant's and Emigrant's Income Tax Guide"

We trust the above information will be of assistance.

Yours truly,

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