17 January 1995 Internal T.I. 9333197 F - Part Year Resident

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.

January 17, 1995

Taxpayer Services Section     Rulings DirectorateInternational Taxation Office     Reorganizations and Foreign Division     M. Séguin

Attention:  Danny Byrne

Sections 217, 115 and 216 of the Income Tax Act Paragraph 2601(1) of the Regulation Part-year Residents

This is in response to your letter dated November 15, 1993 in which you requested our opinion on the application of section 2601 of the Income Tax Regulations (the "Regulations") concerning part-year residents. Your request follows a memo dated June 23, 1993 from the International Tax Programs Directorate on the application of section 2601 of the Regulations to part-year residents who are making an election under section 217 of the Act. You attached a copy of that memo in which the following opinion from Technical Publications Division was cited:

Part XXVI, paragraph 2601(5)(a) of the Income Tax Regulations states that any individual who emigrates from Canada during the year and to whom section 114 applies will pay tax to the particular province in which he or she resided immediately before leaving Canada on all income for the whole year except from carrying on a business from a permanent establishment outside the province.

In your letter, you presented two situations. First, in the situation where a taxpayer emigrates from Canada and continues to receive rental income for the rest of the calendar year, you indicated that a section 216 return reporting the portion of rental income after departure should be filed and taxed to other (as income not earned in a province), not to the province. The other situation mentioned a taxpayer who emigrates and disposes of property after departure (presumably taxable Canadian property) and the income is reported on the same return as income received prior to departure. In that case, you indicated that your procedure would tax the disposition to other (as income not earned in a province).

Your questions

You ask if subsection 2601(1) should apply and therefore tax the income received after departure to the province even though it is rental/capital gain income and, if it is to remain taxed to "other" because it is received after departure, how is it different from the section 217 election.

Our comments

The determination as to whether or not income will be taxed in a province is made according to the definition of "income earned in the year in a province" as defined in subsection 120(4) of the Act. That definition refers to amounts determined by Regulations. Under section 2600 of the Regulations, "income earned in the year in a province" by an individual means the aggregate of his incomes earned in the taxation year in each province, as determined in accordance with Part XXVI of the Regulations. For an individual without business income and who resided in a province on the last day of a taxation year, his income earned in the taxation year in the province is his income for the year. The reference to "the last day of a taxation year" in a situation where the individual resided in Canada at any time in the year but ceased to reside in Canada before the end of the year is deemed, under paragraph 2601(5)(a) of the Regulation, to be a reference to the "last day in the year on which the individual resided in Canada". Accordingly, the individual's income for the taxation year in the province would be his income for the entire year, which would include his world income up to the time of departure and any income taxed by virtue of section 115 of the Act subsequent to his departure from Canada, up to and including December 31 of that year. We would therefore agree with the opinion from Technical Publications cited above.

If an election is made under section 217 of the Act, paragraph 217(b) provides that notwithstanding section 115 of the Act, "for the purposes of computing that person's taxable income earned in Canada for the year", the amounts specified in section 217 of the Act will be added to the total of the amounts determined under paragraph 115(1)(a) of the Act. These amounts would consequently be taxed in the particular province for the year of departure.

If the individual disposes of taxable Canadian property, the taxable capital gain will be included in his taxable income earned in Canada as defined in subsection 115(1) of the Act and reported in the departure year's return under paragraph 114(b) of the Act. Accordingly, these amounts would be taxed in the particular province for the year of departure.

Concerning section 216 of the Act, if an election is made, for the year of departure, for rental income received after the date of departure, these amounts of rental income would not be considered "income earned in the year in a province". In this regard, we note that subsection 2602(1) of the Regulations in effect provides that the income of a non-resident individual does not include income from property.

We regret the delay in responding to your request.

ChiefCorporate Reorganizations II SectionReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch