14 July 1989 Income Tax Severed Letter 7-3900

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

K. Hillier Specialty Rulings
A/Director Directorate
Non-Resident Taxation Division S. Leung
957-2116

Attention: S. Pepin 7-3900

July 14, 1989

SUBJECT: Overseas Employment Tax Credit pursuant to subsection 122.3(1) and Northern Residents Deduction pursuant to subsection 110.7(1)

This is in reply to your memorandum of May 9, 1989 in which you requested our view on whether the taxpayers in the two situations outlined in your memorandum qualify for the Overseas Employment Tax Credit (OETC), as well as the Northern Residents Deduction (NRD).

To qualify for the OETC, an employee must meet all of the requirements set out in the preamble of subsection 122.3(1) of the Act, as well as paragraphs (a) and (b) thereof. One of these requirements is that the employee must be a resident of Canada in the taxation year in which the employee claims the OETC. To qualify for the NRD, the taxpayer must, throughout a period of not less than 6 months commencing or ending in the year, reside in a prescribed area.

It is our view that even though the employee may be physically absent from the prescribed area while he is working overseas, he is considered to be resident in a prescribed area if his centre of vital interest remains in that area. This view is supported by several court cases in which a taxpayer was concluded to be a resident of a province at the end of a year although he was physically absent from the province on December 31 of that year, because of holidays or otherwise, as long as he had not broken the ties with the province and he was required to return to the province under the terms of his employment (see Hoyt v. M.N.R., [[1977] C.T.C. 2401] 77 DTC 270; Park v. M.N.R., [[1979] C.T.C. 2817] 79 DTC 687). It is our understanding that the taxpayers in both of the situations mentioned in your memorandum were permanent residents in a prescribed area before the temporary overseas work assignments and they both returned to their respective residence in the prescribed area thereafter. As a result, notwithstanding that the employee claims the OETC in the year, he may also qualify for the NRD if all of the other requirements referred to in subsection 110.7(1) of the Act are met.

Provided that the duties the employee performs overseas are only of a temporary nature and that he will return to the settled routine of his life in the prescribed area where he still maintains a self-contained domestic establishment while he is away, the employee is considered to maintain and reside in such an establishment as referred to in clause 110.7(1)(e)(ii)(A) of the Act, hence he can claim a deduction pursuant to that clause provided that no other person claims the deduction with respect to that establishment. However, the employee does not qualify for the NRD with respect to the benefit received in respect of travelling expenses incurred by him while he is working overseas. In order to qualify for such a deduction, the benefits he received must be in respect of his employment in the prescribed area pursuant to paragraph 110.7(1)(d) of the Act. Furthermore, subsection 110.7(2) may apply to reduce the paragraph 110.7(1)(e) deduction.

We would like to point out that for the employee to qualify for the OETC in situation 2 described in your memorandum, throughout the time he spent in Canada, the employee must still have been employed by a specified employer in connection with a contract referred to in subparagraph 122.3(1)(b)(i) of the Act or for the purpose of obtaining such a contract on behalf of the specified employer. In addition, the employee must not have performed more than 10% of his duties of employment while he was in Canada. Otherwise, he would not meet all the conditions specified in subsection 122.3(1) of the Act.

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