14 September 1995 External T.I. 9513835 - RESIDENCY - LEAVE OF ABSENCE

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.

		951383
XXXXXXXXXX	David R. Senécal

Attention: XXXXXXXXXX

September 13, 1995

Dear Sirs:

Re: Subparagraph 250(1)(c)(i) of the Income Tax Act (the "Act")

This is in reply to your letter dated May 10, 1995, wherein you requested our opinion as to whether a resident of Canada engaged as an employee of the Great Lakes Fishery Commission (the "Commission") would be regarded as an officer or servant of Canada for the purposes of subparagraph 250(1)(c)(i) of the Act.

In a subsequent telephone conversation, you informed us that you were requesting this information on behalf of a specific taxpayer who was a Canadian citizen currently employed by the Ontario government and who was planning to take a 2-4 year leave of absence from his current position in order to take up residence in the United States and work at the Commission. You also indicated that the taxpayer had chosen to take a leave of absence rather than resign from the Ontario government in order to be able to remain eligible to continue making contributions to the government superannuation plan.

As your request deals with an actual situation rather than a hypothetical one, we are not in a position to deal with this matter other than in the form of an advance ruling request where the identity of the taxpayer involved is known and all of the facts surrounding the proposed transaction are presented to us. However, we are able to provide you with the following general comments which may or may not apply to your specific situation.

A taxpayer's Canadian tax liability on remuneration earned from the Commission would depend firstly on his or her residence status while working for the Commission. The term "residency" is not defined in the Act but is based on common law principles of residency and concerns the residential ties which an individual has, in fact, established and maintained in Canada.

It is always a question of fact as to whether a taxpayer will continue to maintain sufficient residential ties with Canada in order to be considered as remaining a factual resident of Canada. We refer you to Interpretation Bulletin IT-221R2 which outlines our department's position regarding the determination of an individual's residency status for taxation purposes.

Any individual leaving Canada should request a determination of his or her residency status for taxation purposes by completing Form NR73 which may be obtained by calling our International Taxation Office at 1-800-267-5177 or 1-613-952-3741.

Even though an individual may cease to be a factual resident of Canada, that individual may, nevertheless, be deemed to be a resident of Canada for taxation purposes. Pursuant to paragraph 250(1)(c) of the Act, a non-resident of Canada will be deemed to have been resident in Canada throughout a taxation year if he or she was, at any time in the year, an ambassador, minister, high commissioner, officer or servant of Canada or an agent-general, officer or servant of a province and the individual was resident in Canada immediately prior to appointment or employment by Canada or by the province.

While it is our view that an individual would not be an officer or servant of Canada or a province by virtue of being an employee of the Commission, the individual may, for other reasons, nevertheless, be so considered.

More specifically, it is our understanding that, pursuant to the Public Service Employment Act and Regulations, an individual, on leave of absence from the federal public service, is considered to remain an employee of the public service during the period of absence.

Officials at the Ontario Management Board Secretariat have confirmed that the same holds true in the case of Ontario government employees under the provisions the Public Service Act of Ontario. This is evidenced by the fact that a person must be an employee of the Ontario government in order to be eligible to make contributions to the Ontario superannuation or other benefit plans and that a person on leave without pay has the option of continuing to contribute to these plans. We also understand that approved periods of absence are included in the calculation of years of continuous employment for the purpose of calculating vacation leave entitlements.

As noted above, paragraph 250(1)(c) refers to a "servant" of Canada or a province. "Servant" is defined in subsection 248(1) of the Act, within the definition of "employment", as a person holding the position of an individual in the service of some other person. Since an individual can qualify as a "servant" of Canada or a province under this definition without actually rendering services to Canada or a province, we are of the view that a federal or provincial public servant on leave of absence remains a servant of Canada or a province where the particular employment Act so provides. Accordingly, it is our view that such an individual, if no longer a factual resident of Canada, would, nevertheless, be deemed to have been resident in Canada throughout the taxation year pursuant to paragraph 250(1)(c) of the Act.

If an individual remains a factual resident of Canada or is deemed to be a resident because he or she continues to be a federal or provincial government employee, that individual will continue to be taxed in Canada on his or her world income including any remuneration from the Commission, unless the latter is the subject of a specific exemption provided for under the Act. In this regard, we have the following further comments.

Paragraph 81(1)(a) of the Act provides a deduction from income for an amount declared to be exempt from income tax by any other enactment of Parliament, other than an amount received or receivable by an individual that is exempt by virtue of a provision of an Income Tax Convention. Section 5 of the Foreign Missions and International Organizations Act (the "FMIOA") provides that the Governor in Council may, by order, provide for certain privileges and immunities for International Organizations and their officials. While Order in Council P.C. 1981-2359, dated September 4, 1981, does extend certain privileges to the Commission, they are granted solely to the Commission in its own right and the Order does not cover employees of the Commission. Furthermore, subsection 5(3) of the FMIOA states that nothing in any such order exempts a Canadian citizen, residing or ordinarily resident in Canada, from liability for any taxes or duties imposed by any law in Canada.

Pursuant to subparagraph 110(1)(f)(iii) of the Act, income from employment with a prescribed international organization is deductible at arriving at taxable income. Currently, the only prescribed organizations are the United Nations and certain of its agencies.

Subparagraph 110(1)(f)(i) of the Act provides a deduction from taxable income for any amount that is an amount exempt by virtue of a provision contained in a tax convention or agreement with another country. However, paragraph 5 of Article IV of the Canada-United States Income Tax Convention (the "Convention"), would deem an employee of Canada or a province, rendering services of a governmental nature in the United States, to be a resident only of Canada for the purpose of interpreting the provisions of the Convention. Consequently, no provision in the Convention would apply to exempt such person's remuneration from the Commission from taxation in Canada.

We are not in a position to determine whether or not remuneration from the Commission would be exempt from taxation in the United States pursuant to the provisions of the Internal Revenue Code dealing with compensation of employees of foreign governments or international organizations. The United States Internal Revenue Service should be contacted in this regard.

Where the remuneration is taxable in the United States, a taxpayer would be eligible to claim a foreign tax credit on his or her Canadian tax return with respect to income taxes paid to the United States. Subsection 126(3) of the Act would provide a similar tax credit in respect of any levies the taxpayer would be required to pay to the Commission in lieu of taxes on remuneration received from the Commission.

Should an individual no longer be a factual resident of Canada nor deemed to be resident in Canada throughout the taxation year by virtue of continuing to be an employee of the federal or provincial Public Service, Article XV (Dependent Personal Services) of the Convention would most likely prevent Canada from taxing remuneration from the Commission. However, in order for the Convention to apply, the individual would have to be a resident of the United States as defined in paragraph 1 of Article IV (Residence) of the Convention. This would require that, disregarding any possible exemption in the Internal Revenue Code regarding remuneration for employees of international organizations, the individual would otherwise be liable to tax in the United States on his or her world income.

In conclusion, we are of the view that, based on the facts you have presented us with above, a taxpayer would be considered to remain a resident of Canada and subject to Canadian tax on his or her world income.

We trust that these comments will be of assistance to you.

Yours truly,

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