16 November 1989 Income Tax Severed Letter 7-4238 - Income of non-residents for the purposes of the child tax credit and the federal sales tax credit

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.

This is in reply to your memorandum of August 15, 1989 in which you requested our opinion on the interpretation of sections 122.2 and 122.4 of the Income Tax Act as they relate to the computation of family net income for the purposes of the CTC and the FSTC in situations involving a non-resident spouse.

Comments Regarding the CTC

With respect to the CTC, your concern is whether a non-resident spouse of an individual resident in Canada could be considered a "supporting person" as defined in paragraph 122.2(2)(b) of the Act on the basis that the spouse, being separated from the resident individual for reasons other than marital breakdown, could be regarded as residing with the resident individual at the end of the year. Your concern arises because of the following statement contained in Information Circular 80-3R2 (cancelled in December, 1986) at paragraph 17:
• "A spouse is still considered to have resided with the claimant at December 31 if separated only for business, employment, medical or educational reasons."

We agree with you that, notwithstanding the cancellation of Information Circular 80-3R2, the principle expressed in paragraph 17 thereof could still be applicable for the purposes of determining if an individual is a "supporting person" within the meaning assigned by paragraph 122.2(2)(b) of the Act.

In our, opinion, if the non-resident spouse could be considered to reside with the resident spouse at the end of the year, the non-resident spouse would be a "supporting person" by virtue of subparagraph 122.2(2)(b)(i). As a result the income of the non-resident spouse would be included in computing the amount of the CTC available to the resident spouse.

In our view the situation giving rise to your concern would not arise where the spouses have both been resident in Canada and one of them leaves his spouse and Canada only for business, employment, medical or educational reasons. In such circumstances the departing spouse would not be considered to have severed his residential ties with Canada. In this regard we refer you to the following comments contained in Interpretation Bulletin IT-221R2 at paragraphs 4 and 8:

Paragraph  4      "Where a Canadian resident is absent from Canada
                     (for whatever reason) for less than 2 years, he
                     will be presumed to have retained his residence
                     status while abroad, unless he can clearly
                     establish that he severed all residential ties on
                     leaving Canada."
   Paragraph  6      "If a married individual leaves Canada, but his
                     spouse or dependants remain in Canada, the
                     individual will generally be considered to remain a
                     resident of Canada during his absence.  An
                     exception to this may occur where an individual and
                     his spouse are legally separated and the individual
                     has permanently severed all other residential
                     ties within Canada."

Thus if paragraph 17 of Information Circular 80-3R2 should apply to an individual who has left Canada, that individual would not be considered to have severed his residential ties with Canada and would therefore not qualify for non-resident status.

The situation giving rise to your concern could arise where both spouses have been nonresidents of Canada and one of them leaves his spouse and the foreign jurisdiction for any of the reasons set out in Paragraph 17 of Information Circular 80-3R2 and becomes, or is deemed to have become, resident in Canada. In such a situation the resident spouse could, for the purpose of computing his eligibility for the CTC, be considered to be residing with his non-resident spouse. Provided that the resident spouse has an "eligible child" (within the meaning assigned by paragraph 122.2(2)(a) of the Act), the non-resident spouse would qualify as a "supporting person" within the meaning assigned by paragraph 122.2(2)(b) and her income, if any, would be included by virtue of subparagraph 122.2(1)(b)(i) in computing the amount, if any, of the CTC that the resident spouse may claim.

If the nonresident spouse is a "supporting person", the income of that spouse for the purposes of subparagraph 122.2(1)(b)(i) includes his or her world income computed in accordance with the rules set out in section 3 of the Act and not just the non-resident's income that is subject to tax in Canada.

Comments Regarding the FSTC

You have expressed a similar concern with regard to the possible inclusion of a non-resident spouse's income in calculating a resident spouse's eligibility for the FSTC.

As you have observed, subparagraph 122.4(3)(d)(ii) requires the income of the claimant's spouse to be included in determining the amount of the claimant's FSTC if the spouse is a "qualified relation" of the claimant. By virtue of paragraph 122.4(2)(c), a spouse cannot be a qualified relation of the claimant if the spouse "as at no time during the year resident in Canada. Neither the non-resident spouse nor the resident spouse will be eligible for the FSTC in respect of the non-resident spouse and the income of the non-resident spouse, will not be included in computing the FSFC available to the resident spouse, unless the non-resident spouse was resident in Canada at any time during the taxation year. If the non-resident spouse was resident in Canada at any time during the year and otherwise qualified as a "qualified relation" or an "eligible individual" within the meaning assigned by subsection 122.4(1), then the FSTC may be claimed in respect of the non-resident and his or her income will be included in computing the amount of the FSTC available to the claimant.

You have suggested that there is a possibility that the income of a non-resident spouse, who is living apart from his or her resident spouse for reasons other than marital breakdown, would be included in computing the FSTC available to the resident spouse and yet the non-resident spouse would be considered as ineligible for the FSTC (that is, the resident spouse would be unable to claim the FSTC in respect of the non-resident spouse).

In our view such a possibility does not exist. If an individual is an "eligible individual" or a "qualified relation" then the FSTC may be claimed in respect of that individual and his income is included in computing the amount of the FSTC available to the claimant. If the individual is neither an "eligible individual" nor a "qualified relation", then no FSTC may be claimed in respect of that individual and his income is not relevant in computing the FSTC available to his spouse. As stated above, where a person has left Canada and his or her spouse for any of the reasons mentioned in paragraph 17 of Information Circular 80-3R2, such person would not be considered to have severed all residential ties in Canada and would therefore not qualify as a non-resident even though he or she may have taken up residence in a foreign jurisdiction. In such event either spouse could claim the FSTC in respect of both spouses, if the separation became permanent, the statement in paragraph 17 of Information Circular 80-3R2 would no longer apply and they would no longer be considered to reside with each other at the end of the year. The departed spouse would no longer be "a qualified relation" of the resident spouse because they would be considered to be living apart at the end of the year by reason of marital breakdown. Further, the change in their separation might result in the departed spouse having become a non-resident. This would also disqualify the departed spouse from being a "qualified relation" of the resident spouse.

In the situation where two non-resident spouses have separated for any of the reasons mentioned in paragraph 17 of Information Circular 80-3R2 and one of them has become, or is deemed to have become, resident in Canada, then although they might be considered to beside with each other at the end of the year, the non-resident spouse will not, by reason only of his or her spouse's becoming resident in Canada, be considered to have become resident in Canada. In such event the non-resident spouse would not qualify as a "qualified relation" by reason of paragraph 122.4(2)(c) and, therefore, the income of the non-resident would not be included in computing the FSTC entitlement of the resident spouse.

We trust you will find these comments helpful.