13 December 1989 Income Tax Severed Letter AC4125U1 F - Tax Status of Canadian Resident Employees

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.

December 13, 1989

Dear 19(1)

Re:  Tax Status of Canadian Resident Employees

We are writing in reply to your letter of October 12, 1989, concerning the tax status of Canadian residents employed by your company.  The following comments may be of some assistance:

(1)     Under the Canadian Tax system, residents of Canada are liable for tax on their taxable income.  Taxable income generally includes the person's overall income (i.e. including income form employment, business, investments, pensions, etc.) from both domestic and foreign sources.  Employment income from Britship would be included in taxable income.  Under both domestic law and the Double Taxation Agreement between Canada and the United Kingdom (hereinafter referred to as the "treaty"), Canada would allow a foreign tax credit in respect of income taxes paid to the United Kingdom on this employment income.  This will ensure there is no element of double taxation.  The employees will effectively be subject to the higher rate of tax between the two countries.

(2)     The relevant provisions of the treaty fall within Article 15.  Paragraph 1 of this article allows the United Kingdom the right to tax these employees (in addition to Canada's right to tax) on employment income earned from services exercised within its jurisdiction.  Paragraph 3 of the same article goes one step further and allows the United Kingdom the same right to tax where the employment is exercised in international waters so long as the effective management of the employer is in the United Kingdom.

(3)     Due to the time periods these employees may be absent from Canada, we felt we should provide a little information about the determination of an individual's residence status.

a)     The Canadian tax system is based on residency and not citizenship.  There are basically two types of residents:  factual residents and deemed residents.

b)     Factual residence is a question of fact and is determined by weighing various factors, the principal ones for individuals of which are the place where an individual's permanent home is and where an individual's permanent home is and where that individual's economic, social and family ties are.  In this regard, we have enclosed Interpretation Bulletin IT-221R2 for your reference which explains our department's position regarding determination of an individual's residence status.

c)     Deemed residence is determined by statute and most commonly comes into effect when an individual stays in Canada for 183 days or more.

As mentioned in comment #1 above, residents of Canada (whether factual or deemed) are taxable on their world income.  If in fact some of these employees are not resident in Canada, no Canadian tax liability exists unless employment is exercised in Canadian territories.

We trust you will find this to your satisfaction.  If we can be of further assistance, please do not hesitate to contact us.

Yours sincerely,

C. Savage A/DirectorProvincial and International Relations Division

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