31 October 1995 External T.I. 9507485 - EMPLOYEES AT CANADIAN EMBASSY IN SAUDI ARABIA (8019-6)

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:

Whether remuneration paid to non-resident persons who are Locally-Engaged Staff of the Canadian Embassy in Saudi Arabia is subject to tax in Canada under subsection 115(2) of the Act.

Position:

Yes.

Reasons:

	Such remuneration is taxable pursuant to paragraph 	115(2)(c) and the exemption described in clause 	115(2)(e)(i)(a) does not apply since the remuneration is 	not subject to an income or profits tax in Saudi Arabia.

Department of Foreign Affairs
 and International Trade
125 Sussex Drive					950748
Ottawa, Ontario					G. Middleton
K1A 0G2							957-2122

Attention: Mr. J.R. Groves

Director
Locally Engaged Staff Abroad Division

October 31, 1995

Dear Sirs:

This is further to your letter of March 1, 1995 and further to our telephone conversations in which you requested clarification on the taxation of remuneration paid to Locally-Engaged Staff (LES) who are employed by the Canadian Embassy in Riyadh, Saudi Arabia. We apologize for the delay in our response.

Our understanding of the facts is as follows:

1.The LES in question are Canadian citizens who were in fact non-residents of Canada at the time they were hired at the Canadian Embassy in Riyadh. (That is, at the time of their hiring, such LES were not factually resident in Canada and section 250 of the Income Tax Act (the "Act") did not deem them to be residents of Canada.)

2.Such LES were residents of Canada in a prior year.

3.The employment remuneration paid to such LES by the Canadian Embassy is not subject to an income or profits tax in Saudi Arabia.

4.The International Taxation Office of Revenue Canada issued letters informing such LES that they are considered to be non-residents of Canada during the time of employment at the Canadian Embassy in Riyadh.

Based on our understanding of the facts, our comments are as follows:

(a)The remuneration, which is paid by the Canadian Embassy to a non-resident individual who is a LES person described above, must be included in the individual's taxable income earned in Canada and the remuneration is subject to tax in Canada in accordance with paragraph 115(2)(c) of the Act.

(b)Since such remuneration is not subject to an income or profits tax in Saudi Arabia, the remuneration does not fall under the exemption described in clause 115(2)(e)(i)(A) of the Act.

(c)The fact that our International Taxation Office issued letters stating such LES were non-residents of Canada (see 4 above) has no bearing on whether the remuneration paid by the Canadian Embassy is subject to tax in Canada. These letters merely indicate that, for Canadian tax purposes, a certain individual is a non-resident of Canada at a particular time based on the relevant facts for that person. Furthermore, that individual would not be considered as a factual or deemed resident of Canada at the particular time.

(d)In summary, the remuneration received by the LES described above is subject to tax in Canada and the Canadian Embassy should continue to withhold Canadian Income Tax on such remuneration.

(e)If an individual is, in fact, a resident of Canada or a deemed resident of Canada under subsection 250(1) of the Act at the time he is hired to work at a Canadian Embassy as mentioned in 1 above, he would be subject to tax in Canada on his income from all sources.

(f)As indicated above, the critical point in time, that is used to determine whether an individual employed by a particular Canadian Embassy is a non-resident, a resident of Canada or a deemed resident of Canada, is at the time he is hired to work at the particular Embassy.

If you should have any further questions in this matter, we would be pleased to answer them.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Richard Gendron, International Tax Directorate

c.c. Mary Neal, International Taxation Office

c.c. Debbie Bowers, Ottawa Taxation Centre