31 January 1992 Income Tax Severed Letter 913505 - [920131]

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.

Revenue Canada Taxation Head Office

Jim Wilson (613) 957-2123

XXXX

Attention: XXXX

January 31, 1992

Dear Sirs:

We are writing in reply to your letter dated December 18, 1991, in which you requested a technical interpretation of the Bill C-18 amendments to section 118.91 of the Income Tax Act.

Our understanding of the facts is as follows:

1. Mr. A is a United States citizen who has been resident and carried on business in Canada since 1963. He was taxed on his world income in Canada since that date.

2. Mr. A ceased to be resident in Canada on March 15, 1991. but prior to leaving, he received a substantial dividend of XXXX on the redemption of shares he held in a Canadian corporation. This was his only income earned between January 1, 1991 and March 15,1991.

3. Mr. A had other income earned between March 15, 1991 and December 31, 1991 of approximately XXXX. This XXXX was all passive investment income (XXXX of which arose in Canada).

4. Late in 1990, Mr. A signed a pledge to a Canadian university promising a donation to the university of XXXX in 1991. Because of various other financial commitments, the donation will be paid only in December 1991.

Our Comments

Pursuant to paragraph 118.91 (a) of the Income Tax Act (as amended by Bill C-18 and applicable to 1988 and subsequent taxation years), the amount deductible for the year under section 118.1 in respect of the part of the year where Mr. A was not resident in Canada, was not employed in Canada and was not carrying on business in Canada ("non- resident period") shall be computed as though such part were the whole taxation year. In other words, it is necessary to refer to section 118.94 (as was also amended under Bill C- 18) to determine which non-refundable tax credits are deductible by an individual not resident in Canada throughout the whole year. In this regard, section 118.94 does not prevent a non-resident from deducting an amount otherwise deductible pursuant to section 118.1.

Based on the facts provided, Mr. A does not have section 3 income for the non-resident period (ie. this period is treated as though it was a whole taxation year) because the XXXX dividend was received during his period of residence and the XXXX Canadian investment income earned in the non-resident period would not be included in the non-residents computation of Taxable Income Earned in Canada. Accordingly, pursuant to the definition of "total gifts" in subsection 118.1(1) (ie. the limitation to 1/5 of his income for the year), Mr. A's non-refundable tax credit under subsection 118.1(3) for the "non-resident period" would be nil.

As no donations were made during the period of January 1, 1991 to March 15, 1991 (ie. the period of residence), a separate taxation year for the purposes of section 118.1, no deduction can be made under that section for that period.

With respect to your query raised during our telephone conversation regarding the application of section 118.91 as it read immediately prior to Bill C-18 ("former section 118.91") to the same fact situation, it is our opinion that former section 118.91 would have denied a non-refundable tax credit to Mr. A for his 1991 charitable donation. Again, based on the information provided, Mr. A did not have all or substantially all of his income for the year included in computing his taxable income (eg. XXXX = 89% - see paragraph's 5 and 17 of Interpretation Bulletin IT- 171R) and therefore former section 118.91 would have denied a non- refundable tax credit otherwise allowable under section 118.1 except where the non-refundable tax credit otherwise permitted may reasonably be considered wholly applicable to the individual for the period or periods in the year throughout which he is resident in Canada, employed in Canada or carrying on business in Canada. In this regard it is our view that the charitable donation made in December 1991 is not wholly applicable to the period of January 1, 1991 to March 15, 1991.

We trust these comments will be of assistance to you.

Yours Truly,

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