2 January 1996 External T.I. 9527355 - RESIDENCY, DEFINITION OF SPOUSE, ETC

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.

		952735
XXXXXXXXXX	S. Leung

January 2, 1996

Dear XXXXXXXXXX:

Re: Definition of Spouse, Deductions by a Management Company, etc.

We are writing in response to your facsimile of October 13, 1995 wherein you requested our views on various subjects described in your letter. As the subjects described in your letter appear to relate to an actual situation we suggest that you contact the Tax Services Office serving your area for assistance by providing them with all the facts and circumstances of the situation. However, we can provide the following general comments.

Definition of "Spouse"

The word "spouse" is not defined in the Income Tax Act (the "Act"). So it has the ordinary meaning found in the dictionary. The Concise Oxford Dictionary defines "spouse" as "husband or wife". The word "spouse" has the meaning of "one's husband or wife" also in Black's Law Dictionary which defines "husband" as "a married man; one who has a lawful wife living" and "wife" as "a woman united to a man by marriage; a woman who has a husband living and undivorced". The Income Tax Act (the "Act") does contain an extended meaning of "spouse" in subsections 252(3) and (4) of the Act. In subsection 252(3) of the Act, a spouse or former spouse of a particular individual include, for purposes of certain provisions of the Act, another individual of the opposite sex who is a party to a voidable or void marriage with the particular individual. Pursuant to paragraph 252(4)(a) of the Act, for purposes of the Act, words referring to a spouse at any time of a taxpayer include a person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and (i) has so cohabited with the taxpayer throughout a 12-month period ending before that time, or (ii) is a parent of a child of whom the taxpayer is a parent (but does not include a person who is a parent of the child's spouse).

Residence

It is a question of fact whether an individual is a resident of Canada. The determination of residence of an individual can only be made by examining all the facts and circumstances with respect to that individual. As you are aware, Interpretation Bulletin IT-221R2 contains the Department's general view on residence determination and provides some guidelines to taxpayers regarding such determination. For a taxpayer who was a resident of Canada and who wishes to obtain assistance in determining whether he is still a resident of Canada after he has emigrated to a foreign country, he can complete Form NR74 and forward it to International Taxation Office in Ottawa. The address is 2450 Lancaster Road, Ottawa, Ontario, K1A 1A8. The toll-free telephone number of International Taxation Office within Canada is 1-800-267-5177 (Taxpayers outside Canada can call (613) 952-3741). If such taxpayer has re-entered or will re-enter Canada to exercise employment in Canada, such a fact and the length of time such taxpayer expects to be present in Canada should also be disclosed on Form NR74. You may obtain Form NR74 at the Taxation Services Office serving your area.

If based on the facts and circumstances such taxpayer is not considered to be a factual resident of Canada, paragraph 250(1)(a) of the Act deems a person to have been resident in Canada throughout the taxation year if that person sojourned in Canada in the year for a period of, or periods the total of which is, 183 days or more.

As a resident of Canada (whether he is a factual or a deemed resident), the taxpayer is taxed on his worldwide income and he is required to file a T1 income tax return to report such income. He may be eligible to claim a foreign tax credit for any income tax paid to a foreign country on any of such income which is sourced outside Canada.

We do not feel that by engaging a management company (even if the shares of which are owned by a Canadian resident not related to him) to provide all or most of his employment needs (e.g. renting a business vehicle, procuring office staff and supplies, etc.) an individual can avoid being considered a resident of Canada. We see no difference with respect to the residence determination of the individual if such employment needs are provided by either the individual's non-resident employer or the management company.

With respect to your question regarding whether RRSP held by a non-resident person would render that person to be resident of Canada, it is our view that RRSP holding, in and by itself, would not render that person a resident of Canada. The Act perceives that a non-resident person can, if certain conditions are met, contribute to and hold a RRSP as evidenced by the definition of "earned income" under subsection 146(1) of the Act. However, payments out of a RRSP (whether periodic or lump sum) to a non-resident of Canada are subject to Canadian income tax under Part XIII of the Act.

Non-Resident

Subject to the application of the income tax treaty that Canada may have with the country of residence of an individual who is a non-resident of Canada, such individual is subject to tax on his earnings from employment exercised in Canada notwithstanding that the earnings are paid by an employer who is a non-resident of Canada. In other words, it is the place where the service is performed that counts, not the residence status of the employer, the location of the employer or the location the amount is paid.

Deductions of Management Company

With respect to what deductions can be claimed by a management company for income tax purposes, the Act does not contain a set of rules specifically for management companies and there are no specific guidelines issued by the Department with respect to the deductions by management companies. The general rules, among other things, are that there must be an expectation of profit for the management company, the amount sought to be deducted is reasonable, is not a capital outlay or expenditure, and is not specifically prohibited under the provisions of the Act. We enclose herewith a copy of each of Interpretation Bulletins IT-189R2 and IT-73R4 with respect to corporations used by practising members of professions and income from a personal services business. We hope these bulletins will be helpful.

Permanent Establishment

By having an employee working in a fixed place of business in Canada, the employer is considered to have a permanent establishment in Canada. Such an employer is subject to tax in Canada under subsection 115(1) of the Act on business income attributable to the permanent establishment. In such a case, a bilateral income tax treaty between Canada and the country in which the employer is resident would not exempt the employer from being taxed in Canada on his taxable income earned in Canada.

In addition, a non-resident individual who earns employment income from employment exercised at a permanent establishment in Canada is subject to tax in Canada on such income. In general, Canada's income tax treaties do not provide relief from such taxation.

We hope you may find the above to be of assistance. As noted above, if you would like to have further assistance with respect to a specific situation, please contact the Tax Services Office in your area and provide them with all the facts and circumstances of that particular situation.

Yours truly,

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

Enclosures