10 April 1992 External T.I. 9132345 F - Employed in Canada – Director's Fees

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.

Attention:  19(1)

April 10, 1992

Dear Sirs:

Re:  Section 114 of the Income Tax Act (the "Act")

This is in reply to your letter of November 15, 1991 wherein you requested our opinion concerning the application of section 114 of the Act in the following two hypothetical situations where an individual becomes a resident of Canada during a taxation year.

(i)     The individual, during the period in the year in which he was not resident in Canada (the non-residency period), is a director of one or more Canadian corporations. However, his director duties are of a relatively passive nature. For instance, he did not attend any directors' meetings in Canada nor did he perform any other employment activities in Canada during the non-residency period.

(ii)     The individual, during the non-residency period in the year, owned a limited partnership unit. The limited partnership is carrying on business in Canada. The limited partnership unit is a qualifying investment under the Government of Canada's Business Immigration Program enabling the individual to immigrate to Canada. The limited partner deals at arm's length with the general partner.

It is a question of fact whether or not an individual was employed in Canada at any time in a particular year. Subsection 248(1) of the Act defines employed as "... performing the duties of an office or employment". Since the term "office" in subsection 248(1) of the Act includes the position of a corporate director, it is our view that an individual who is a director of a corporation would be considered employed in Canada only when he actually carries out the duties of that office in Canada. Therefore, where a director attends directors' meetings in Canada, he will be considered to be employed in Canada only for those specific days in which the duties of director are exercised in Canada. Where the director does not attend any directors' meetings or perform any other functions of that office in Canada he will not be considered to be employed in Canada for purposes of the Act. Accordingly for purposes of section 114 of the Act the individual in situation (i) above would not be considered to be employed in Canada during the non-residency period.

In accordance with common law, where a partnership carries on business each of the partners, whether limited or general, will be considered to carry on that business. Where the partnership carries on that business through a permanent establishment, each of the partners are considered to carry on that business through a permanent establishment. For purposes of section 114 of the Act, the individual who throughout the non-residency period owned a limited partnership unit in a partnership carrying on business in Canada in situation (ii) above will not fall within that section since he is considered to carry on the business in Canada. Accordingly, subsection 2(2) of the Act will apply to such an individual when determining his taxable income for the year.

We trust this explanation is adequate for your purposes.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch