21 September 1990 Income Tax Severed Letter AC59792 - Canada-U.K. Income Tax Convention on Employment Income

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.

24(1)                                        5-9792
                                             M.P. Sarazin
                                             (613) 957-2125

Dear Sirs:

Re: Clause 115(2)(e)(i)(B) of the Income Tax Act (Canada) (the "Act") and the Canada-U.K. Tax Convention (the "Convention")

This is in reply to your letter dated March 6, 1990 in which you requested our advice regarding the reporting requirements in the following situation. Please accept our apologies for the delay in responding.

Facts

24(1)

Your client has based his calculation of withholding tax upon the interaction of clause 115(2)(e)(i)(B) of the Act and paragraph of Article 15 of the Convention. Employment income earned in Canada may be taxed in Canada under paragraph 1 of Article 15 of the Convention whereas the provisions of clause 115(2)(e)(i)(B) of the Act require that remuneration attributable to duties of employment performed in Canada must be included in income.

In your letter you have outlined an actual fact situation related to a past transaction. As the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayer are not known, we are unable to comment thereon. However, we can provide you with the following general comments which we hope will be of assistance to you.

A bonus for services performed by an individual while employed by a person would constitute "salaries, wages and other similar remuneration" for the purposes of Article 15 of the Convention. Paragraph 1 of Article 15 of the Convention sets out the general rule that salaries, wages and other similar remuneration derived by a U.K. resident in respect of employment activities exercised in Canada may be taxed in Canada, unless the particular remuneration qualifies for the exemptions in paragraphs 2 and 3 thereof.

It is our view that any such bonus payment would normally be taxable in Canada under the provisions of subparagraph 115(1)(a)(i) of the Actor paragraph 115(2)(c) of the Act, depending on the particular facts of the situation. In any case, any portion of a payment to a non-resident person relating to duties performed outside Canada is not required to be included in computing the individual's taxable income in Canada.

When an amount is taxable in Canada, subsection 153(1) of the Act requires that the person making the payment withholds the prescribed amount on the bonus. Since the amount paid is remuneration as defined in subsection 100(1) of the Income Tax Regulations (the "Regulations") then subsection 105(2) of the Regulations provides that subsection 105(1) of the Regulations (withholding tax of 15%) does not apply. Such remuneration would generally be subject to withholding taxes calculated in accordance with section 103 of the Regulations.

Where, however, the employee was neither employed nor resident in Canada at the time of payment, subsection 104(2) of the Regulations provides that withholding under section 103 is only required for the portion of the remuneration attributable to services performed in Canada. The employer would have to issue a T4 for the full amount of the payment pursuant to subsection 200(1) of the Regulations and the individual would be responsible for filing a Canadian personal income tax return. We trust you will fine the foregoing satisfactory.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch