22 January 1987 Income Tax Severed Letter 7-1425 - [Article IV, Canada-U.S. Income Tax Convention, 1980 (the "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.

January 22, 1987 Specialty Rulings Directorate G. Thornley 957-2130 RE: Article IV, Canada-U.S. Income Tax Convention, 1980 (the "Treaty")

We are returning the six (6) unassessed 1985 returns included with your Round Trip Memorandum ("RTM") of January 7, 1987 concerning an individual's residency status pursuant to the income Tax Act (the "Act") and pursuant to the "tie breaker" rules in Article IV of the Treaty. Such issues are normally dealt with at the District Office level, since these determinations involved questions of fact and the particular auditor or examiner is normally in possession of, or in a position to obtain, the relevant facts.

We are, however, prepared to provide the following comments with respect to the interaction of the provisions of the Act and the Treaty.

Where a taxpayer is considered to be sojourning in Canada (i.e., he is not factually resident in Canada or is not simply commuting but has in fact been present and employed here for a total of 183 days or more) paragraph 250(1)(a) of the Act deems him to have been resident in Canada throughout the taxation year. The residency rules set out in Article IV of the Treaty 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 purposes of determining the extent to which another Article of the Treaty might exempt certain income from Canadian Tax.

The effect of the foregoing is that a taxpayer, as indicated by you, is taxable under subsection 2(1) of the Act on his world income for the calendar year (subject, however, to certain conditions). By virtue of paragraph 250(1)(a), section 2 and 3 and so on, the sojourner's world income for Canadian tax purposes may include amounts not taxable pursuant to the Treaty. In other words even though certain items of income may be exempt from tax in Canada pursuant to the Treaty they are still included in income under the Act. When this happens a taxpayer can, however, look to subparagraph 110(1)(f)(i) and not paragraph 81(1)(a) of the Act for a deduction of those amounts. For example, where pursuant to Article IV of the Treaty, a taxpayer is considered a resident of the U.S. for purposes of the Treaty, Article XV thereof provides that he is not taxable in Canada on employment income earned elsewhere (but is of course taxable on any Canadian employment income), and Article XXII thereof dictates that he is not taxable in Canada on interest and dividend income sourced elsewhere. Thus to reiterate, these items of income would be reportable in Canada by virtue of paragraph 250(l)(a), sections 2 and 3 and so on but would then be deducted in arriving at taxable income by virtue of subparagraph 110(1)(f)(i) of the Act.

We have examined your query which is based on the assumption that the taxpayers worked in Canada for 183 days or more in 1985 and thus are deemed, pursuant to paragraph 250(1)(a) of the Act, to be residents of Canada throughout the entire 1985 calendar year. The number of days they spent in Canada during 1985 is, of course, a question of fact. However, the files indicate that they worked in Canada for a mere 26 weeks and thus working 7 days per week they were here for a minimum of 183 days. As they a pear to have maintained their families and homes in the XXXX we expect they returned home from time to time and thus were likely to have been in Canada less than 183 days during the year. If so, than they are subject to the provisions of section 115 of the Act. How many days they in fact sojourned in Canada is, of course, a question of fact. You may wish to further review this aspect of these files.

We trust that our comment will be of assistance.

ORIGINAL SIGNED BY Wm. R. McColm for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch