26 October 1989 Income Tax Severed Letter AC74296 - Tax Guide for International Teachers and Professors

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.

Non-Resident Taxation Division      Specialty Rulings
                                      Directorate
                                      R.C. O'Byrne
                                      957-2126
J.D.  Hartwick

Tax Guide for International Teachers and Professors

We have reviewed the above-mentioned tax guide as requested. Our comments are as follows:

1)       It would add to the clarity of the guide if the term
         world income were defined in paragraph 1 on page 2.
         We suggest that the definition of world income you have
         used in paragraph 2 on Page 8 be inserted in this
         paragraph.  

2)       As there could be a problem related to dual residency a
         paragraph should be added after paragraph 2 on page 2 to
         point out the possibility that a person may have dual
         residency for the purposes of taxation.  Where Canada
         has a reciprocal tax treaty with the person's country of
         origin, the person should refer to the "tiebreaker
         rules" in that treaty to determine in which country he
         is resident for the purposes of the treaty.  In the case
         of a person who is deemed to be resident of Canada
         pursuant to the 183 day rule it is quite likely that the
         "tiebreaker rule" will go in favour of the other country
         and such a person will be considered resident of the
         other country for the purposes of the treaty.  The
         effect of such a determination will be that Canada will
         only have the right to tax the person's Canadian source
         income.  As a deemed resident the person will be
         required to report his world income but will be entitled
         to relief from Canadian taxation on that income as
         provided for in the particular treaty.
         The impact of the "tiebreaker" rule should also be
         pointed out under the heading "Calculation of Taxable
         Income".  

3)       The example outlined in paragraph 3 on page 2 could be
         expanded to deal with the dual residency problem and the
         impact of the Canada-France Income Tax Convention on
         such a situation.  We suggest the following wording:

               "Paul is a teacher from France.  He arrived in
               Canada in March of 1989 and during the 1989
               calendar year spent more than 183 days in Canada. 
               While in Canada Paul continued to be a factual
               resident of France.  Paul's 1989 world income
               consisted of the following amounts all expressed
in
               Canadian currency:

             1) $18,000 salary earned in Canada;

             2) $15,000 salary earned in France; and

             3) $1,000 United States source interest.

               Since Paul spent more than 183 days in Canada he
               will be deemed to be a resident of Canada and will
               be subject to tax in Canada on his world income
               ($18,000 + $15,000 + $1,000 = $34,000).  However,
               as Canada has a reciprocal tax treaty with France
               and Paul is a resident of both countries for tax
               purposes the tiebreaker rules in this treaty would
               come into play to determine in which country Paul
               is a resident.  If Paul retained his residential
               ties to France while in Canada the tiebreaker
               rules would make him a resident of France for
               purposes of the treaty. He would be required to
               report his world income ($34,000) on his Canadian
               tax return but would be entitled to deduct from
               this amount items which are exempted from Canadian
               taxation by virtue of the treaty ($15,000 French
               source salary and $1,000 United States source
               interest).  Thus even though Paul is a deemed
               resident of Canada in this situation because of
               the 183 day rule he would only be subject to tax
               in Canada on his Canadian source income."

4)       The reference to Information Circular 77-16A in
         paragraph 2 on page 4 should read Information Circular
         77-16R3.

5)       Page 5 - Paragraph 1 and Page 7 - Paragraphs 1 and 2
         In each of these paragraphs you have discussed whether
         provincial tax or the federal surtax on income not
         earned in a province apply to a teacher or professor who
         is a deemed resident of Canada because he or she
         sojourned in Canada for 183 days or more during a
         calendar year. You have indicated that deemed residents
         who are present in a province or territory on December
         31 are subject to either provincial or territorial tax
         in that particular jurisdiction.  We do not agree with
         your position on this issue.  Individuals who are not
         actually resident in Canada but who are deemed resident
         in Canada and who did not carry on business would not
         fall within the ambit of Part XXVI of the Regulations
         (and, in particular section 2601 therein) for they would
         not have actually resided in a particular province on
         the last day of a taxation year. 
         Accordingly, such individuals would not have any "income
         earned in the year in a province" (as defined in Part
         XXVI of the Regulations) and they would be required to
         compute their federal tax payable at the non-resident
         rate pursuant to subsection 120(1) of the Act.  In view
         of this whether or not a deemed resident is present in a
         province or territory on December 31 is immaterial.
         Such an individual is always going to be subject to
         federal tax payable at the non-resident rate and should
         file using the General Tax Guide and Return for
         Individuals Outside Canada.

         These paragraphs should be amended to reflect the
         above-mentioned discussion.

6) Page 5 - Example 1

         This example should be amended to indicate that Linda
         should use the General Tax Guide and Return for
         Individuals Outside Canada in this situation for the
         reasons outlined in 6) above.

7)       In paragraph 2 on page 4 you have commented on the "all
         or substantially all" test that must be met by non-
         residents before they can claim non-refundable tax
         credits.  You have indicated that non-residents may not
         claim any non-refundable tax credits unless they meet
         this test.

         Section 118.94 of the Act outlines which non-refundable
         tax credits are subject to the "all or substantially
         all" limitation.  This provision indicates that sections
         118 and 118.2, subsections 118.3(2) and (3) and sections
         118.5 to 118.9 are subject to this test.  Section 118.94
         does not indicate that the charitable gift credit
         described in section 118.1 or the credit for mental or
         physical impairment described in subsection 118.3(1) are
         subject to the "all or substantially all" limitation
         when non-residents compute their tax payable.

         This paragraph should be amended accordingly.

We are returning your draft copy and your file.

We trust these comments will be of assistance to you. for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch