11 May 1988 Income Tax Severed Letter 7-2584 - [Northern Residents Deduction]

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.

May 11 1988

J.A. Szeszycki (613) 957-2130

SUBJECT: Northern Residents Deduction Section 110.7 of the Income Tax Act ("Act")

We are responding to your memorandum of February 22, 1988 wherein you requested our opinion concerning the qualifying period for eligibility for the northern residents deduction (NRD) as well as several situations in which residency in the prescribed area throughout the qualifying period is in question.

1. Qualifying Period

The NRD is available to those individuals who resided in an area that is a prescribed area "throughout a period of not less than 6 months commencing or ending in the year". The determination of the period of residency required to meet the 6 month "test" centres on the interpretation of the word "month", as used in section 110.7 of the Act.

You have been referred to subsection 25(7) of the Interpretation Act which provides that where there is a reference to a period of time expressed in months following or preceding a specified day that period would extend to the day in the last month that is the same calendar number as the specified day. You have also referred in your memorandum to our interpretation of the word "month" as used in S.122.3 of the Act (Overseas Employment Tax Credit). For the purposes of that provision we have advised that a month includes a partial month with the result that the "period of more than six months" criteria would be met even though the first and seventh months are partial months.

In our view the word "month" should be interpreted in a similar manner in applying the provisions of section 110.7. The formula set out in subsection 25(7) of the Interpretation Act is used to calculate the period of months that follow or precede a specified day. In order for the formula to be used the "day" must be specified in the legislation. For example, paragraph 150(1)(b) of the Act provides, in the case of deceased persons, that a return must be filed "within six months from the day of death", where the day is actually specified. Sections 110.7 and 122.3 do not specify such a day. Consequently, where a day is not specified in the legislation then "month" must be interpreted in accordance with the definition contained in section 28 of the Interpretation Act, i.e., "month" means a calendar month. A calendar month is defined in Black's Legal Dictionary as a month on the Gregorian calendar i.e. March, April etc. As a result, where even one day in the particular calendar month is used, that month must be included in the period being determined.

2. Resided in an Area

Before providing comments on the specific situations outlined in your memorandum, two general comments on the subject of residency in the context of section 110.7 are in order.

First, the deduction is intended for individuals who reside in a prescribed area for not less than six months. The implication of the relatively short six month test is that there is not the requirement for permanence in the established residency, i.e., severance of self and family from the other or former place of residence. It is our opinion, therefore, that an individual may have more than one place of residence at the same time.

Second, residency throughout the qualifying period must be continuous. As is noted in the T1 Guide, that continuity is not considered to be broken by short term absences from the prescribed area such as vacations and temporary work assignments. This point perhaps requires some clarification. There are individuals who reside in a prescribed area on a permanent basis, i.e., "in the settled routine" of their lives, that is where they "regularly or customarily" reside, and there are those individuals who reside in the prescribed area on a temporary (although at least six months) basis who may even maintain another residence in a non-prescribed area where they or their families "regularly or customarily" reside. It is our view that for those individuals in the former category a temporary absence (where the individual intends and ultimately does return to his "customary" residence) will not break the continuity of his residence. For those individuals in the latter category whose temporary absences consist of returning regularly to their other permanent residence each such absence is considered to be a break in the continuity of his residency in the prescribed area.

With respect to the specific situations set out in (a) to (d) of your memorandum we offer the following views:

a) The taxpayer has a temporary residence in the prescribed area where he works from Monday to Friday returning home to his family in the non-prescribed area on weekends. In our view this individual, as well as the individual who under contract works in the prescribed area on alternate weeks but resides at his customary place of residence outside the prescribed area in the other weeks, is clearly in the latter category explained above and the trips outside of the prescribed area are considered to break the continuity of his residency in the prescribed area. While the two examples in your memorandum fit clearly into the guidelines, it becomes much less clear when the absences are not as frequent. For example, if the individual in your example returned home (in the non-prescribed area) for one weekend in four or six instead of every weekend would we still consider the absence as a break in continuity? Although this is considered to be more of a theoretical than a practical question in light of the likelihood of our becoming aware of such infrequent absences, the answer would have to take all of the taxpayer's particular circumstances into consideration.

b) A trainman maintains an apartment at an away-from-home location in a prescribed area and his family resides in a non-prescribed area. His apartment in the prescribed area would not, in our view, be considered a place where he customarily lives. Therefore, unless he resided in the away-from-home location continuously for at least six months, per our earlier comments, he would not be considered resident in the prescribed area for the purpose of section 110.7 of the Act.

c) A taxpayer who normally resides in a prescribed area is transferred June 1st to a location outside the prescribed area. His wife and family remain behind so that the children can finish out the school year before joining him in the new location. You ask whether the wife would be entitled to the deduction. As an individual taxpayer who, we assume, has resided in the prescribed area since the start of the year, she would have met the "6 month" criteria and would therefore be entitled to the deduction. Whether the transferred husband is entitled to a claim depends on how he as an individual meets the "6-month" and "residency" tests. It should be kept in mind that the period of six continuous months required for eligibility for the deduction does not have to be wholly in the particular taxation year. It can be a period commencing or ending in the taxation year as long as the residency is for a continuous six month period.

Therefore, the transferred husband will likely have met the six-month residency test. If the period prior to the transfer is not quite six months (as defined earlier in our response) then it would be necessary to determine whether his move out of the prescribed area was permanent or temporary. His eligibility period terminates as soon as his absence from the prescribed area can be considered as no longer temporary having regard to intent, establishment of another residence, permanence of employment at the new location etc.

d) The taxpayers described in d) of your memorandum are taxpayers who are ordinarily resident in a prescribed area but who are absent for an extended but temporary period. As discussed in c) above such an individual would be considered resident in the prescribed area until such time as his absence can no longer be considered temporary. Obviously the longer the absence the more difficult it would be for the taxpayer to show that the "settled routine of his life" still included residence in the prescribed area.

Although it is expected that there will be borderline cases that will be subject to debate it is hoped that the principles set out in this memorandum will assist you in resolving the numerous queries being received.

Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch