11 April 1991 Ruling 910863 F - Non Residents - Exemption from Tax Deductions at Source on Employment Income

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.

Dear Sirs:

This is in reply to your correspondence dated March 25, 1991 wherein you have asked us to confirm this Department's administrative policy  regarding paragraph 6 of Interpretation Bulletin 161R3 entitled "Non Residents - Exemption from Tax Deductions at Source on Employment Income" dated October 8, 1982 (the "IT").

Specifically you wish confirmation that employers are not required to  withhold tax on remuneration (as defined in subsection 100(1) of the Income Tax Regulations ("Regulations")) paid to non-residents of Canada where the remuneration is not includable in the non-residents taxable income earned in Canada by virtue of the exception in subparagraph  115(2)(e)(i) of the Income Tax Act ("Act").

Pursuant to paragraph 104 (2)(a) of the Regulations, the exemption from withholding tax described in subsection 104(2) of the Regulations does not technically extend to any remuneration described in subparagraph 115(2)(e)(i) of the Act where the non-resident had been a resident of Canada in the year of payment or a previous year.

However, it remains this Department's administrative practice to not require withholding were the remuneration is not includable in the non-resident's taxable income earned in Canada because the remuneration is not attributable to duties of an office or employment performed in Canada and is either

(a)     subject to a foreign income tax, or

(b)     meets the conditions described in clause 115(2)(e)(i)(B) of the Act.

However, we would suggest that, while no formal waiver is required, an employer contact the Source Deductions Section of his local District Taxation Office for advice regarding his particular fact situation.  The withholding requirements will only be waived where it is clearly evident that the remuneration will not be subject to Canadian tax and, in our view, it would be prudent to have any actual situation confirmed, at least informally, by this Department.

You have also asked our opinion with respect to the application of paragraph 6 of the IT in the following circumstances:

1.     B Co., a resident of Canada, is in the investment business.

2.     Mr. A is an employee of B Co. and acts as an investment advisor for B Co. Specifically, Mr. A provides advice, sells property and negotiates contracts for B Co.

3.     Mr. A will move to a foreign country and will cease to be a resident of Canada.  He will continue to be employed by B Co. and will perform the same duties described in 2 above in foreign country.

Given the foregoing assumptions, remuneration paid to Mr. A after he ceases to be a resident of Canada in respect of employment duties performed by him outside of Canada (including any such payments made in the year of departure) would appear to be a situation to which paragraph 6 of the IT applies.

However, as stated previously, any actual situation should be discussed with the Source Deductions Section of a District TaxationOffice to ensure that, in the Department's view, the exception in clause 115(2)(e)(i)(B) of the Act clearly will be applicable.

We trust the foregoing is of assistance.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch