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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Centre of vital interests determination for XXXXXXXXXX employees/dual residents on temporary assignment in the United States.
Position TAKEN:
Question of fact situation. However, the Department should analyze the personal and economic ties over a period of time and not just the period of dual residence if it is to determine those more meaningful or significant ties to a particular country.
Reasons FOR POSITION TAKEN:
The memorandum is self explanatory in this regard.
March 22, 1994
Head Office - Appeals Branch Head Office
Appeals & Referrals Division Rulings Directorate
Jim Nordin, Section Chief Jim Wilson
957-8953
Attention: John Kingston
940204
Centre of Vital Interests - XXXXXXXXXX Employees
This is in reply to your memorandum of January 17, 1994, in which you requested our comments concerning submissions from XXXXXXXXXX (the "representative") regarding the application of Article 4 of the Canada-U.S. Income Tax Convention ("treaty") to XXXXXXXXXX employees on assignment in the United States. Your memorandum states that our Directorate "has expressed the view that since the XXXXXXXXXX employees on foreign assignment have return clauses in their employment contracts i.e. they are to return to Canada after 2 or 3 years, the centre of vital interests test should be examined within the context of a longer period i.e. beyond that of the taxpayer's absence from the country, since he obviously intends to return to Canada". The representative has provided new information regarding the purpose and intention of those "return clauses".
XXXXXXXXXX
The sentence in Appendix B pertaining to the period of time to be examined was worded as follows:
"We are of the view that when analysing the personal and economic interests of an individual for purposes of the tie-breaker rule in a treaty, we must analyze the situation over a period of time and not just the specific period the individual is temporarily residing at the new location."
The above sentence was in respect of, as had been explained in the preceding paragraph in Appendix B, a centre of vital interests determination for an individual who had left one country on a temporary basis to carry out some kind of activity in another country for a specific period of time. It is arguable that if the centre of vital interests test is limited to the period of stay in the other country then the test in fact becomes an habitual abode test which is supposed to only apply where the centre of vital interests can not be determined.
There would appear to be some confusion regarding the emphasis to be placed on the "return to Canada" clause in an employment contract. The reason the XXXXXXXXXX employees are into a "tie-breaker" situation is because they remained factual residents of Canada while on assignment outside Canada. In other words, the XXXXXXXXXX employees did not sever their residential ties with Canada. A job to return to in Canada after the termination of the foreign assignment, albeit an important factor, would not have been enough in and by itself to cause a factual residence determination. Other residential ties with Canada (eg. the house that was kept vacant) also existed and contributed to such a determination.
The OECD commentary states that "the circumstances must be examined as a whole..." and our comments in Appendix B were intended to suggest that the Department look at the whole picture when making a centre of vital interests determination. The permanent home test and the centre of vital interests test are similar in that they are attempting to settle the matter on those more meaningful or significant connections to a state as opposed to residence based merely on time or length of stay.
Where a taxpayer has not severed his residential ties with Canada, there is an indication that he intends to return to Canada. We remain of the view that the Department, in such cases, must analyze the personal and economic ties over a period of time in order to make a determination of those more meaningful or significant ties. In this regard, we would be inclined to think that a house owned in Canada versus a home rented for the length of the stay in the United States or a long-term job in Canada versus a temporary job in the United States should be viewed as the more meaningful or significant ties. The fact that a taxpayer's spouse and immediate family is present with him in the United States during the period of dual residence must be kept in its proper context since those dependants were with him immediately before the temporary assignment and will likely return with him to Canada after the assignment.
The new information submitted by the representative "seeks to establish that the return clause in the employment contracts of the XXXXXXXXXX employees who go on assignments abroad was not intended to, nor in a real sense ever did, prevent employees from remaining in the foreign countries". We would suggest that the more relevant clause, as a factor to consider in determining factual residence in Canada or a centre of vital interests determination, is the clause that would ensure the taxpayer has a job in Canada to return to. Even with the return clause removed from such contracts, the opportunity to remain in the new country after the assignment will depend on several variables within and beyond the employee's control. The real significant economic ties, in our opinion, should be the long-term job security.
It is not clear as to what significance there is in the fact that 25% of XXXXXXXXXX assignees do not return to Canada after their assignment. Regardless, such a statistic can be misleading without knowing the full details behind every case. For example, for the assignees who did not return to Canada, has the foreign assignment just been extended or have they severed their residential ties with Canada and if so at what point in time did they sever those ties. On the other hand it is not clear as to how many of that 25% would have been considered dual residents to begin with.
We hope the above comments will assist you. It must be emphasized that a centre of vital interests determination, like a residence determination, is a question of fact and each case must be looked at separately. In any case, as these determinations are a matter of judgement, should you determine after considering all the facts that a reasonable case can be made for saying that the centre of vital interest of a particular taxpayer is Canada, it is suggested that you seek the support of Legal Services prior to taking any action.
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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