30 September 1992 Income Tax Severed Letter 9226852 - U.S. Citizen Residing in Canada

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.

922685
Jim Wilson
(613)957-2123
19(1)
September 30, 1992

Dear 19(1) We are writing in reply to your letter of September 3, 1992, concerning your tax status in Canada. The following general comments may be some assistance:

• 1. The liability for tax under the Canadian tax system is based on residency.
• 2. The term residency is not defined in the Income Tax Act but is based on common law principles of residency and concerns the residential ties which an individual has in fact established within Canada. In this regard we have enclosed Interpretation Bulletin IT-221R2 which explains the Department's position regarding determination of an individual's residence status. Landed immigrant status under the Immigration Act, 1976 is a means by which a person may legally enter Canada and enables him to establish ties and become eligible in the future to apply for citizenship. The fact that an individual has or has not applied for landed immigrant status will not alone cause or prevent a determination of factual residence status (ie. it is just one of the many facts that must be considered).

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• All individuals entering Canada who require a determination of residency status should complete form NR74 (copy attached) and send it to the address provided on the top of the form. The International Taxation Office will then make a determination of the individual's residence status for purposes of the Income Tax Act. If you have any questions in this regard, a phone number has been provided on the form.
• 3. Individuals resident in Canada are liable for tax on their taxable income. Taxable income generally includes the individual's overall income (ie. including income from employment, business, investments, pensions, etc.) from both domestic and foreign sources (i.e. world income). The applicable federal tax rates progress as taxable income increases. The Newfoundland tax rate is a percentage of the basic federal tax.
• We have enclosed the "Tax Guide for New Canadians" that should answer most of the questions raised in your letter. Also enclosed is a 1991 General Tax Guide and Return for Residents of Newfoundland (note: the 1992 Guides are not available yet) which will provide you with information concerning the calculation of your federal and province of Newfoundland taxes. It should be noted that the 1992 rates of tax and personal tax credits will be slightly different than that of the previous year.
• 4. As you are aware, there is a Convention between Canada and the United States for the avoidance of double taxation and the prevention of fiscal evasion (the "treaty"). Where provisions in the treaty are inconsistent with that of the domestic taxation law, the treaty provision will generally prevail. In order to interpret the treaty, it is necessary to determine which country you are a resident for tax purposes. Due to the temporary nature of your stay in Canada, you may be considered a resident of both Canada and the United States. You would have to contact the Internal Revenue Service if you wish to determine your residence status in the U.S. while living in Canada. Where you are considered a resident of both jurisdictions, Article IV (copy enclosed) of the treaty provides a tie-breaker rule that will determine, for purpose of interpreting the treaty, in which country you will be considered resident.

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• It is not possible for the Department to determine the residency status of an individual for purposes of the tie-breaker rule without having all the specific facts. However, the first tie-breaker rule will establish an individual as a resident of the country in which he has a permanent home available to him. Any form of home may be taken into account (house or apartment belonging to or rented by the individual, furnished accommodations made available to the individual at all times continuously, etc.). Where the individual has a permanent home available to him in both countries or in neither country, he will be considered a resident of the country with which his personal and economic relations are closer (centre of vital interests). However, it should be noted that a determination of residency for purposes of the treaty will not change your residency for Canadian taxation purpose.
5. The treaty provisions that may be of some relevance to you are as follows:
• a) Where an individual is a resident of Canada for purposes of the Income Tax Act and a resident of the U.S. for purposes of the treaty, Article XV (copy enclosed) of the treaty will maintain Canada's right to tax all salary, wages and other similar remuneration derived by that individual in respect of an employment exercised in Canada, whether received from Canada or elsewhere, if such remuneration exceeds $10,000 Canadian. The U.S. will also have the right to tax such remuneration and would be required, pursuant to Article XXIV of the treaty and subject to their domestic rules, to provide a tax credit in respect of Canadian taxes paid on that employment income to reduce or eliminate any U.S. taxes applicable to the same source. This would effectively eliminate any double taxation.
• b) Where the individual is a resident of Canada for purposes of the Income Tax Act and the treaty, Article XV will not affect Canada's right to tax employment income earned by that individual.

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• However, where the individual is a citizen of the U.S., paragraph 1 of Article XV does not apply to deny the U.S. the right to tax remuneration derived by that resident of Canada in respect of an employment exercised in Canada (ie. paragraph 2 of Article XXIX (copy enclosed) overrides Article XV). Again, however, the U.S. would be required to provide a tax credit for Canadian taxes paid on such remuneration against the U.S. citizen tax computed in respect of that employment income.

We trust the above comments will be of assistance to you. If you require further assistance, please refer to page 27 of the "Tax Guide for New Canadians" which provides the telephone numbers with which you may call.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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