2 March 1989 Income Tax Severed Letter 7-3468 - [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.

MAR - 2 1989

J.A. SZESZYCKI 957-2130

SUBJECT: Northern Residents Deduction

We are writing in response to your memorandum of November 22, 1988 in which you requested our views as to the application of section 110.7 of the Act to two sets of circumstances.

Case 1

Facts

The particular facts of the case can be summarized as follows:

- The taxpayer resides in a prescribed area and each year for a period of approximately six months he leaves the prescribed area for the purpose of employment.

- When he returns to his home in the prescribed area he begins to receive unemployment insurance benefits.

Questions

a) Would the taxpayer be considered a continuing resident in the prescribed area during his prolonged absences?

b) Would the answer to a) depend on whether the taxpayer has a family that continues to reside in the prescribed area throughout the period or is single and perhaps living with his parents while in the prescribed area?

c) What is considered to be a temporary work assignment and when does a work assignment stop being temporary?

Comments

In order to determine a taxpayer's entitlement to a claim for the Northern Residents Deduction ("NRD") it must first be established that the individual was resident in the prescribed area throughout a period of not less than six months. The use of the word "throughout" clearly sets out the requirement that the residency be continuous. The concept of residency distinguishes between permanent and temporary residence at a particular location. A permanent residence is viewed as being the location at which an individual regularly and customarily lives, in the settled routine of his life whereas a temporary residence is one at which the individual intends to stay for a relatively short (sometimes predetermined) time after which the individual will return to the location of residence where he customarily resides.

For individuals in the "permanent" category temporary absences from the location of residence should not affect their residency status at that location, regardless of the reasons for each absence. In other words, the continuity of his residency would not be considered broken until such time as his absence can no longer be viewed as temporary having regard to such factors as intent, establishment of another residence, permanence of employment at the new location and a settling of accounts etc. at the old location. For individuals in the "temporary" category, especially those who continue to maintain a residence at a location where they regularly and customarily reside, the continuity of residence at the temporary location would be viewed as broken if the individual returned to his primary residence or took up temporary residence at still another location.

In the context of Section 110.7 of the Act, therefore, a permanent resident of a prescribed area would be considered a continuing resident of that area despite temporary absences. For example, an individual who ordinarily resides in a prescribed area of Newfoundland but who travels yearly to Ontario to find seasonal employment and then subsequently returns to his prescribed area residence would be considered to have been resident in the prescribed area throughout the year.

While the above comments would not depend on whether he had a family that continued to reside in the prescribed area during his absence, it is recognized that a single individual would have a more difficult task of establishing that the prescribed area residence continues to be the place where he regularly and customarily resides in the "settled routine of his life" and, in our view, the onus would be properly placed on the taxpayer in this regard.

The question of whether a temporary absence from the prescribed-area constitutes a break in the continuity of an individual's residency there is only significant, therefore, in dealing with "temporary" residents in the prescribed area. For example, where an individual temporarily residing in a prescribed area is given a work assignment by his employer that takes him outside the prescribed area for several days, it is clearly not intended that such a sojourn would disrupt the continuity of his residence in the prescribed area. In fact, he would be considered to be resident there until such time as he could be considered resident elsewhere.

Case 2

The facts of the case can be summarized as follows:

- A husband and wife reside in a home within a prescribed area.

- For five months of the year the husband works at a special work site, also within the prescribed area, and, is flown home every few weeks for the weekend.

Questions

a) Where is the husband considered to ordinarily reside during the five month work assignment?

b) Is the wife entitled to claim a deduction under the provisions of subclause 110.7(1)(e)(ii)(A) during the five months that the husband is at the special work site and for which he is claiming under the same subclause?

Comments

In light of our previous comments on the subject of residency, under case 1, we would conclude that despite the husband's temporary work assignment away from his principal residence (presumably a self contained domestic establishment) he would still be considered to have resided in and maintained that residence throughout the year. Consequently, each of the taxpayers is equally entitled to a claim under paragraph 110.7(1)(e) and it remains to be decided between the husband and wife as to who will make the claim under subparagraph 110.7(1)(e)(ii). Given the facts of the case presented, the provisions of subsection 110.7(2) do not have application since the self-contained domestic establishment being maintained as his principal residence is not in an area outside the prescribed area as required in paragraph b) thereof...

It is hoped that the above comments will assist in resolving similar-queries that your Division has received.

Small Business and General Division Specialty Rulings Directorate